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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended February 28, 2003.
OR
|_| TRANSITION REPORT SUBJECT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to _____________________
Commission File Number: 0-11380
ATC HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2650500
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1983 Marcus Avenue, Lake Success, NY 11042
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 750-1600
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Name of Exchange
Title of Each Class on Which Registered
---------------------- -----------------------
Securities registered pursuant
to Section 12 (b) of the Act: Class A Common Stock, American Stock Exchange
$.01 par value
Class B Common Stock, American Stock Exchange
$.01 par value
Securities registered pursuant
to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _x__
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12 b-2 of the Securities Exchange Act of 1934.
Yes |_| No |X|
As of August 30, 2002, the approximate aggregate market value of voting stock
held by non-affiliates of the registrant was $20,641,386 based on a closing sale
price of $1.09 per share. The number of shares of Class A Common Stock and Class
B Common Stock outstanding on June 6, 2003 was 23,615,706 and 256,191 shares,
respectively.
1
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is included in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders 2003, which information
is incorporated herein by reference. All references to "we", "us," "our," or
"ATC" in this Report on Form 10-K means ATC Healthcare, Inc.
Part I.
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ITEM 1. Business
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General
ATC Healthcare, Inc. ("ATC" or the "Company") is a Delaware corporation which
was incorporated in New York in 1978 and reincorporated in Delaware in May 1983.
Unless the context otherwise requires, all references to the "Company" include
ATC Healthcare, Inc. and its subsidiaries. The Company is a national provider of
medical supplemental staffing services. In August 2001, the Company changed its
name from Staff Builders, Inc. to ATC Healthcare, Inc.
Spin-Off Transaction
On March 22, 1999, the Company's Board of Directors approved a plan to separate
its home health care business from its supplemental staffing business and to
create a separate, publicly-traded company engaged exclusively in providing home
health care services. To accomplish this separation of its businesses, the
Company's Board of Directors established a new, wholly-owned subsidiary, Tender
Loving Care Healthcare Services, Inc. ("TLCS"), which acquired 100% of the
outstanding capital stock of the Company's subsidiaries engaged in the home
health care business. The spin-off was effected on October 20, 1999 through a
pro rata distribution to the Company's stockholders of all the shares of common
stock of TLCS owned by the Company (the "Distribution"). The Distribution was
made by issuing one share of TLCS common stock for every two shares of the
Company's common stock outstanding on October 12, 1999 (the "Record Date").
Based upon the 23,619,388 shares of the Company's common stock outstanding on
the Record Date, 11,809,694 shares of TLCS common stock were distributed to
holders of the Company's common stock after the spin-off. The Company's medical
supplemental staffing business remained with the Company after the spin-off.
The Company's medical supplemental staffing services are provided through its
wholly-owned subsidiary, ATC Healthcare Services, Inc. The Company also provided
information technology staffing services through its majority owned subsidiary,
Chelsea Computer Consultants, Inc. ("Chelsea") until September 17, 1999, when it
sold its entire interest in Chelsea.
On September 17, 1999, the Company sold its entire interest in Chelsea for total
consideration of $17.5 million. The $17.5 million in proceeds received was used
to pay approximately $8.4 million of borrowings under the Company's acquisition
line of credit, approximately $4 million of borrowings under the Company's
revolving line of credit and $500 thousand to a former principal of Chelsea. The
remaining $4.6 million was used to pay down the TLCS revolving line of credit.
The Company's interest in Chelsea was sold at a loss of approximately $1.1
million.
Recent Acquisitions
On October 5, 2001, the Company purchased substantially all of the assets of
Doctors' Corner and Healthcare Staffing, Inc., which provides permanent and
temporary medical administrative services to clients in southern California. The
purchase price was $1,075,000; $300,000 of which was paid at closing, $100,000
of which was paid on January 1, 2002, $100,000 of which was paid on April 1,
2002 and the remaining $575,000 of which is payable in 20 quarterly installments
beginning July 1, 2002.
2
In January, 2002, the Company purchased substantially all of the assets of
Direct Staffing, Inc. ("DSI"), a licensee of the Company serving the territory
consisting of Westchester County, New York and Northern New Jersey, and DSS
Staffing Corp. ("DSS"), a licensee of the Company serving New York City and Long
Island, New York, for a purchase price of $30,195,000. These two licensees were
owned by an unrelated third party and by a son and two sons-in-law of the
Company's Chairman of the Board of Directors, who have received in the aggregate
60% of the proceeds of the sale. The Company will be required to pay additional
contingent consideration equal to the amount by which (a) the product of (i)
Annualized Net Revenues (as defined in the purchase agreement) for the period
and (ii) 5.25 exceeds (b) $17,220,000, but if and only if such calculation
exceeds $20 million.
In June 2002, the Company bought out a management contract with a company
("Travel Company") which was managing its travel nurse division. The conversion
of the business was completed in October 2002, and the Company now directly
manages its travel nurse division. The purchase price of $620,000 is payable
over two years beginning in December 2002. The Travel Company had received
payments from the Company of $702,000 and $1,362,000 for fiscal years ended
February 28, 2003 and 2002, respectively, for its management of the travel nurse
division. The Company is amortizing the cost over the five years that were
remaining on the management contract.
In June 2002, the Company purchased substantially all of the assets and
operations of Staff One Healthcare, which provides temporary medical staffing
services to clients in Tucson, Arizona and Las Vegas, Nevada. The purchase price
was $500,000; $300,000 of which was paid at closing, and the remaining $200,000
of which is payable in 8 quarterly installments beginning October 1, 2002.
In June 2002, the Company purchased substantially all of the assets and
operations of Staff Relief, which provides temporary medical staffing services
to clients in Stratford, Connecticut. The purchase price was $109,000; $65,000
of which was paid at closing, and the remaining $44,000 of which was paid in
November 2002.
In October 2002, the Company purchased substantially all of the assets and
operations of All Nursing, which provides temporary medical staffing services to
clients in Houston, Texas. The purchase price was $200,000; $120,000 of which
was paid at closing, and the remaining $80,000 of which is payable in 6
quarterly installments beginning November 2002.
In October 2002, the Company purchased substantially all of the assets and
operations of Accessible Staffing, which provides temporary medical staffing
services to clients in Milwaukee, Wisconsin. The purchase price was $340,000,
together with interest on the unpaid amount at the rate of 6% per annum which is
paid as follows; interest only payments from January 2003 through January 2004
and equal monthly payments of principal and interest for 36 months commencing
February 2004.
In November 2002, the Company purchased substantially all of the assets and
operations of Nurses, Inc., which provides temporary medical staffing services
to clients in Portland, Oregon. The purchase price was $75,000; $30,000 of which
was paid at closing, and the remaining $45,000 of which is payable in 3 monthly
payments of $15,000 commencing December 2002.
On February 28, 2003, the Company purchased from CMS Capital Ventures all the
assets relating to their office locations in Dallas/Fort Worth, Texas and
Atlanta, Georgia which provide temporary medical staffing services. The purchase
price was $1,000,000 which was paid at closing.
3
Operations
The Company provides supplemental staffing to health care facilities through its
network of 67 offices in 26 states, of which 39 are operated by 20 licensees and
28 are owned and operated by the Company. The Company offers its clients
qualified health care associates in over 60 job categories ranging from the
highest level of specialty nurse, including critical care, neonatal and labor
and delivery, to medical administrative staff, including third party billers,
administrative assistants, claims processors, collection personnel and medical
records clerks. The nurses provided to clients include registered nurses,
licensed practical nurses and certified nursing assistants. Other services
include allied health staffing which includes mental health technicians, a
variety of therapists (including speech, occupational and physical), radiology
technicians and phlebotomists.
Clients rely on the Company to provide a flexible labor force to meet
fluctuations in census and business and to help clients acquire health care
associates with specifically needed skills. The Company's medical staffing
professionals also fill in for absent employees and enhance a client's core
staff with temporary workers during peak seasons.
Clients benefit from their relationship with the Company because of the
Company's expertise in providing properly skilled medical staffing employees to
a facility in an increasingly tight labor market. The Company has developed a
skills checklist for clients to provide information concerning a prospective
employee's skill level. Clients also benefit from no longer having to concern
themselves with the payment of employee wages, benefits, payroll taxes, workers
compensation and unemployment insurance for staff provided by the Company
because these are processed through the Company.
The Company also operates a Travel Nurse Program whereby qualified nurses,
physical therapists and occupational therapists are recruited on behalf of the
clients who require such services on a long-term basis. These individuals are
recruited from the United States and foreign countries, including Great Britain,
Australia, South Africa and New Zealand to perform services on a long-term basis
in the United States.
The Company has contracted with a number of management entities for the
recruitment of foreign nurses. The management entities must arrange for the
nurses' and therapists' immigration and licensing certifications so that they
can be employed in the United States.
ATC has expanded its client base to include nursing homes, physician practice
management groups, managed care facilities, insurance companies, surgery
centers, community health centers and schools. By diversifying its client list,
the Company believes it lessens the risk that regulatory or industry sector
shifts in staffing usage will materially affect the Company's staffing revenues.
Licensee Program
The Company's licensing program is one of the principal factors differentiating
it from most of its competition. After agreeing to pay an initial license fee in
exchange for a grant of an exclusive territory, the licensee is paid a royalty
of approximately 55% (60% for certain licensees who have longer relationships
with the Company) of gross profit (in general, the difference between the
aggregate amount invoiced and the payroll and related expenses for the personnel
delivering the services). The licensee has the right to develop the territory to
its fullest potential. The licensee is also responsible for marketing,
recruiting and customer relationships within the assigned territory. All
locations must be approved by the Company prior to the licensee signing a lease
for the location. Various management reports are provided to the licensees to
assist them with ongoing analysis of their medical staffing operations. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, invoices the customers and processes and collects the accounts
receivable. The licensees are responsible for providing an office and paying
administrative expenses including rent, utilities, telephone and costs of
administrative personnel.
4
The Company grants an initial license term of ten years. The agreement has an
option to renew for two additional five-year renewal terms, subject to the
licensee adhering to the operating procedures and conditions for renewal as set
forth in the agreement. In certain cases the Company may convert an
independently owned staffing business into a licensee. In those situations, the
Company negotiates the terms of the conversion on a transaction-by-transaction
basis, depending on the size of the business, client mix and territory.
Sales of licenses are subject to compliance with Federal and particular state
franchise laws. If the Company fails to comply with the franchise laws, rules
and regulations of the particular state relating to offers and sales of
franchises, the Company will be unable to engage in offering or selling
licensees in or from such state. To offer and sell licensees, the Federal Trade
Commission requires the Company to furnish to prospective licensees a current
franchise offering disclosure document. The Company has used a Uniform Franchise
Offering Circular ("UFOC") to satisfy this disclosure obligation. The Company
must update its UFOC annually or upon the occurrence of certain material events.
If a material event occurs, the Company must stop offering and selling
franchises until the UFOC is updated. In addition, certain states require the
Company to register or file its UFOC with such states and to provide prescribed
disclosures. The Company is required to obtain an effective registration of its
franchise disclosure document in New York State and certain other registration
states. The Company is currently able to offer new franchises in 38 states.
For fiscal 2003, 2002, and 2001, total staffing licensee distributions were
approximately $9.1 million, $16.9 million, and $14.4 million, respectively.
Two of the Company's largest licensees, Direct Staffing, Inc. and DSS Staffing
Corp., were owned by one unrelated third party and by a son and two sons-in-law
of the Chairman of the Board of Directors of the Company. Such licensees were
paid gross licensee fees of approximately $6,527,000 and $5,263,000 in fiscal
2002 and 2001, respectively. As previously noted, these entities were acquired
by the Company in January 2002.
Personnel, Recruiting and Training
The Company employs approximately 15,000 individuals who render staffing
services and approximately 194 full time administrative and management
personnel. Approximately 122 of these administrative employees are located at
the branch offices and 72 are located at the administrative office in Lake
Success, New York.
The Company screens personnel to ensure that they meet all eligibility
standards. This screening process includes skills testing, reference checking,
professional license verification, interviews and a physical examination. In
addition, new employees receive an orientation on the Company's policies and
procedures prior to their initial assignment. The Company is not a party to any
collective bargaining agreement and considers its relationship with its
supplemental staffing employees to be satisfactory.
It is essential to recruit and retain a qualified staff of staffing associates
who are available to be placed on assignment as needed. Besides advertising in
the local classifieds, utilizing local office web sites and participating in
local and regional job fairs, the Company offers a variety of benefit programs
to assist in recruiting high quality medical staffing professionals. This
package provides employees access to medical, dental, life and disability
insurance, a 401(k) plan, opportunities for Continuing Education Credits,
partnerships with various vendors for discount programs (e.g. uniforms,
vacations and cruises, credit cards, appliances and cars), recognition programs
and referral bonus programs. In addition, the Company provides its licensees a
full-service human resources department to support the offices with policies and
procedures as well as to assist with the day-to-day issues of the field staff.
5
Sales and Marketing
The Company begins a marketing and operational education program as soon as an
office becomes operational. This program details the entire sales process. The
program stresses sales techniques, account development and retention as well as
basic sales concepts and skills. Through interactive lectures, role plays and
sales scenarios, participants are immersed in the sales program.
To provide ongoing sales support, the Company furnishes each licensee and
corporate branch manager with a variety of tools. A corporate representative is
continuously available to help with prospecting, customer identification and
retention, sales strategies, and developing a comprehensive office sales plan.
In addition, various guides and brochures have been developed to focus office
management's attention to critical areas in the sales process.
Each licensee and corporate branch manager is responsible for generating sales
in its territory. Licensees and corporate branch managers are taught to do this
through a variety of methods in order to diversify their sales conduits. The
primary method of seeking new business is to call on health care facilities in
the local area. Cold calls and referrals are often used to generate leads. Once
granted an interview, the ATC representative is instructed to emphasize the
highlights of the Company's services.
Competition
The medical staffing industry is extremely fragmented, with numerous local and
regional providers nationwide providing nurses and other staffing solutions to
hospitals and other health care providers. As HMOs and other managed care groups
expand, so too must the medical staffing companies that service these customers.
In addition, momentum for consolidation is increasing among smaller players,
often venture capital-backed, who are trying to win regional and even national
accounts. Because the temporary staffing industry is dominated generally by
large national companies that do not specialize in medical staffing, management
believes that its specialization will give it a competitive edge. In addition,
its licensee program gives each licensee an incentive to compete actively in his
or her local marketplace.
Service Marks
The Company believes that its service trademark and the ATC* logo have
significant value and are important to the marketing of its supplemental
staffing services. These marks are registered with the United States Patent and
Trademark Office. The ATC* trademark will remain in effect through January 9,
2010 for use with nursing care services and healthcare services. These marks are
each renewable for an additional ten-year period, provided the Company continues
to use them in the ordinary course of business.
Regulatory Issues
In order to service our client facilities and to comply with OSHA and Joint
Commission or Accreditation of Healthcare Organizations standards, we have
developed a risk management program. The program is designed to protect against
the risk of negligent hiring by requiring a detailed skills assessment from each
healthcare professional. We conduct extensive reference checks and credential
verifications for the nurses and other healthcare professionals that we might
staff.
6
Professional Licensure and Corporate Practice
Nurses and other healthcare professionals employed by us are required to be
individually licensed or certified under applicable state law. In addition, the
healthcare professionals that we staff frequently are required to have been
certified to provide certain medical care, such as CPR and anesthesiology,
depending on the positions in which they are placed. Our comprehensive
compliance program is designed to ensure that our employees possess all
necessary licenses and certifications, and we believe that our employees,
including nurses and therapists, have obtained the necessary licenses and
certification required to comply with all such applicable state laws.
Business Licenses
A number of states require state licensure for businesses that, for a fee,
employ and assign personnel, including healthcare personnel, to provide services
on-site at hospitals and other healthcare facilities to support or supplement
the hospitals' or healthcare facilities' work force. A number of states also
require state licensure for businesses that operate placement services for
individuals attempting to secure employment. Failure to obtain the necessary
licenses could interrupt business operations in a specific locale. We endeavor
to maintain in effect all required state licenses.
Regulations Affecting Our Clients
Many of our clients are reimbursed under the federal Medicare program and state
Medicaid programs for the services they provide. In recent years, federal and
state governments have made significant changes in these programs that have
reduced reimbursement rates. Future federal and state legislation or evolving
commercial reimbursement trends may further reduce, or change conditions for,
our clients' reimbursement. Such limitations on reimbursement could reduce our
clients' cash flows, hampering their ability to pay us.
Risk Factors
Currently We Are Unable to Recruit Enough Nurses to Meet Our Clients' Demands
for our Nurse Staffing Services, Limiting the Potential Growth of Our Staffing
Business
We rely significantly on our ability to attract, develop and retain nurses and
other healthcare personnel who possess the skills, experience and, as required,
licenses necessary to meet the specified requirements of our healthcare staffing
clients. We compete for healthcare staffing personnel with other temporary
healthcare staffing companies, as well as actual and potential clients, some of
which seek to fill positions with either regular or temporary employees.
Currently, there is a shortage of qualified nurses in most areas of the United
States and competition for nursing personnel is increasing. At this time we do
not have enough nurses to meet our clients' demands for our nurse staffing
services. This shortage of nurses limits our ability to grow our staffing
business. Furthermore, we believe that the aging of the existing nurse
population and declining enrollments in nursing schools will further exacerbate
the existing nurse shortage. In addition, in the aftermath of the terrorist
attacks on New York and Washington, we experienced a temporary interruption of
normal business activity. Similar events in the future could result in
additional temporary or longer-term interruptions of our normal business
activity, which would adversely affect our financial results.
7
The Costs of Attracting and Retaining Qualified Nurses and Other Healthcare
Personnel May Rise More than We Anticipate
We compete with other healthcare staffing companies for qualified nurses and
other healthcare personnel. Because there is currently a shortage of qualified
healthcare personnel, competition for these employees is intense. To induce
healthcare personnel to sign on with them, our competitors may increase hourly
wages or other benefits. If we do not raise wages in response to such increases
by our competitors, we could face difficulties attracting and retaining
qualified healthcare personnel. In addition, if we raise wages in response to
our competitors' wage increases and are unable to pass such cost increases on to
our clients, our margins could decline.
We operate in a highly competitive market and our success depends on our ability
to remain competitive in obtaining and retaining hospital and healthcare
facility clients and temporary healthcare professionals.
The temporary medical staffing business is highly competitive. We compete in
national, regional and local markets with full-service staffing companies and
with specialized temporary staffing agencies. Some of these companies may have
greater marketing and financial resources than we do. Competition for hospital
and healthcare facility clients and temporary healthcare professionals may
increase in the future and, as a result, we may not be able to remain
competitive. To the extent competitors seek to gain or retain market share by
reducing prices or increasing marketing expenditures, we could lose revenues or
hospital and healthcare facility clients and our margins could decline, which
could seriously harm our operating results and cause the price of our stock to
decline. In addition, the development of alternative recruitment channels could
lead our hospital and healthcare facility clients to bypass our services, which
would also cause our revenues and margins to decline.
Our business depends upon our continued ability to secure and fill new orders
from our hospital and healthcare facility clients, because we do not have
long-term agreements or exclusive contracts with them.
We do not have long-term agreements or exclusive guaranteed order contracts with
our hospital and healthcare facility clients. The success of our business
depends upon our ability to continually secure new orders from hospitals and
other healthcare facilities and to fill those orders with our temporary
healthcare professionals. Our hospital and healthcare facility clients are free
to place orders with our competitors and may choose to use temporary healthcare
professionals that our competitors offer them. Therefore, we must maintain
positive relationships with our hospital and healthcare facility clients. If we
fail to maintain positive relationships with our hospital and healthcare
facility clients, we may be unable to generate new temporary healthcare
professional orders and our business may be adversely affected.
Decreases in Patient Occupancy at Our Clients' Facilities May Adversely Affect
the Profitability of Our Business
Demand for our temporary healthcare staffing services is significantly affected
by the general level of patient occupancy at our clients' facilities. When a
hospital's occupancy increases, temporary employees are often added before
full-time employees are hired. As occupancy decreases, clients may reduce their
use of temporary employees before undertaking layoffs of their regular
employees. We also may experience more competitive pricing pressure during
periods of occupancy downturn. In addition, if a trend emerges toward providing
healthcare in alternative settings, as opposed to acute care hospitals,
occupancy at our clients' facilities could decline. This reduction in occupancy
could adversely affect the demand for our services and our profitability.
8
Healthcare reform could negatively impact our business opportunities, revenues
and margins.
The U.S. government has undertaken efforts to control increasing healthcare
costs through legislation, regulation and voluntary agreements with medical care
providers and drug companies. In the recent past, the U.S. Congress has
considered several comprehensive healthcare reform proposals. The proposals were
generally intended to expand healthcare coverage for the uninsured and reduce
the growth of total healthcare expenditures. While the U.S. Congress did not
adopt any comprehensive reform proposals, members of Congress may raise similar
proposals in the future. If any of these proposals are approved, hospitals and
other healthcare facilities may react by spending less on healthcare staffing,
including nurses. If this were to occur, we would have fewer business
opportunities, which could seriously harm our business.
State governments have also attempted to control increasing healthcare costs.
For example, the state of Massachusetts has recently implemented a regulation
that limits the hourly rate payable to temporary nursing agencies for registered
nurses, licensed practical nurses and certified nurses' aides. The state of
Minnesota has also implemented a statute that limits the amount that nursing
agencies may charge nursing homes. Other states have also proposed legislation
that would limit the amounts that temporary staffing companies may charge. Any
such current or proposed laws could seriously harm our business, revenues and
margins.
Furthermore, third party payors, such as health maintenance organizations,
increasingly challenge the prices charged for medical care. Failure by hospitals
and other healthcare facilities to obtain full reimbursement from those third
party payors could reduce the demand or the price paid for our staffing
services.
We are Dependent on the Proper Functioning of Our Information Systems
Our company is dependent on the proper functioning of our information systems in
operating our business. Critical information systems used in daily operations
identify and match staffing resources and client assignments and perform billing
and accounts receivable functions. Our information systems are protected through
physical and software safeguards and we have backup remote processing
capabilities. However, they are still vulnerable to fire, storm, flood, power
loss, telecommunications failures, physical or software break-ins and similar
events. In the event that critical information systems fail or are otherwise
unavailable, these functions would have to be accomplished manually, which could
temporarily impact our ability to identify business opportunities quickly, to
maintain billing and clinical records reliably and to bill for services
efficiently.
9
We may be legally liable for damages resulting from our hospital and healthcare
facility clients' mistreatment of our healthcare personnel.
Because we are in the business of placing our temporary healthcare professionals
in the workplaces of other companies, we are subject to possible claims by our
temporary healthcare professionals alleging discrimination, sexual harassment,
negligence and other similar activities by our hospital and healthcare facility
clients. The cost of defending such claims, even if groundless, could be
substantial and the associated negative publicity could adversely affect our
ability to attract and retain qualified healthcare professionals in the future.
If Regulations that Apply to us Change, We May Face Increased Costs That Reduce
Our Revenue and Profitability
The temporary healthcare staffing industry is regulated in many states. In some
states, firms such as our company must be registered to establish and advertise
as a nurse staffing agency or must qualify for an exemption from registration in
those states. If we were to lose any required state licenses, we could be
required to cease operating in those states. The introduction of new regulatory
provisions could substantially raise the costs associated with hiring temporary
employees. For example, some states could impose sales taxes or increase sales
tax rates on temporary healthcare staffing services. These increased costs may
not be able to be passed on to clients without a decrease in demand for
temporary employees. In addition, if government regulations were implemented
that limited the amounts we could charge for our services, our profitability
could be adversely affected.
Future Changes in Reimbursement Trends Could Hamper Our Clients' Ability to Pay
Us
Many of our clients are reimbursed under the federal Medicare program and state
Medicaid programs for the services they provide. In recent years, federal and
state governments have made significant changes in these programs that have
reduced reimbursement rates. In addition, insurance companies and managed care
organizations seek to control costs by requiring that healthcare providers, such
as hospitals, discount their services in exchange for exclusive or preferred
participation in their benefit plans. Future federal and state legislation or
evolving commercial reimbursement trends may further reduce, or change
conditions for, our clients' reimbursement. Limitations on reimbursement could
reduce our clients' cash flows, hampering their ability to pay us.
Competition for Acquisition Opportunities May Restrict Our Future Growth by
Limiting Our Ability to Make Acquisitions at Reasonable Valuations
Our business strategy includes increasing our market share and presence in the
temporary healthcare staffing industry through strategic acquisitions of
companies that complement or enhance our business. We have historically faced
competition for acquisitions. In the future, such competition could limit our
ability to grow by acquisitions or could raise the prices of acquisitions and
make them less attractive to us.
We May Face Difficulties Integrating Our Acquisitions Into Our Operations and
Our Acquisitions May be Unsuccessful, Involve Significant Cash Expenditures or
Expose Us to Unforeseen Liabilities
We continually evaluate opportunities to acquire healthcare staffing companies
and other human capital management services companies that complement or enhance
our business. From time to time, we engage in strategic acquisitions of such
companies or their assets.
10
These acquisitions involve numerous risks, including:
- potential loss of key employees or clients of acquired companies;
- difficulties integrating acquired personnel and distinct cultures into
our business;
- difficulties integrating acquired companies into our operating,
financial planning and financial reporting systems;
- diversion of management attention from existing operations; and
- assumption of liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for their failure to comply
with healthcare regulations.
These acquisitions may also involve significant cash expenditures, debt
incurrence and integration expenses that could have a material adverse effect on
our financial condition and results of operations. Any acquisition may
ultimately have a negative impact on our business and financial condition.
Significant Legal Actions Could Subject Us to Substantial Uninsured Liabilities
In recent years, healthcare providers have become subject to an increasing
number of legal actions alleging malpractice, product liability or related legal
theories. Many of these actions involve large claims and significant defense
costs. In addition, we may be subject to claims related to torts or crimes
committed by our employees or temporary staffing personnel. In some instances,
we are required to indemnify clients against some or all of these risks. A
failure of any of our employees or personnel to observe our policies and
guidelines intended to reduce these risks, relevant client policies and
guidelines or applicable federal, state or local laws, rules and regulations
could result in negative publicity, payment of fines or other damages. To
protect ourselves from the cost of these claims, we maintain professional
malpractice liability insurance and general liability insurance coverage in
amounts and with deductibles that we believe are appropriate for our operations.
However, our insurance coverage may not cover all claims against us or continue
to be available to us at a reasonable cost. If we are unable to maintain
adequate insurance coverage, we may be exposed to substantial liabilities, which
could adversely affect our financial results.
If Our Insurance Costs Increase Significantly, These Incremental Costs Could
Negatively Affect Our Financial Results
The costs related to obtaining and maintaining workers compensation,
professional and general liability insurance and health insurance for healthcare
providers has been increasing. If the cost of carrying this insurance continues
to increase significantly, we will recognize an associated increase in costs
which may negatively affect our margins. This could have an adverse impact on
our financial condition and the price of our common stock.
If We Become Subject to Material Liabilities Under Our Self-Insured Programs or
Certain Contingent Liabilities, Our Financial Results May Be Adversely Affected
We provide workers compensation coverage through a program that is partially
self-insured. If we become subject to substantial uninsured workers compensation
liabilities, our financial results may be adversely affected.
We have a substantial amount of goodwill on our balance sheet. A
substantial impairment of our goodwill may have the effect of decreasing our
earnings or increasing our losses.
As of February 28, 2003, we had $33.4 million of unamortized goodwill on our
balance sheet, which represents the excess of the total purchase price of our
acquisitions over the fair value of the net assets acquired. At February 28,
2003, goodwill represented 42% of our total assets.
11
Historically, we amortized goodwill on a straight-line basis over the estimated
period of future benefit of up to 25 years. In July 2001, the Financial
Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 142 requires that, subsequent to January
1, 2002, goodwill not be amortized but rather that it be reviewed annually for
impairment. In the event impairment is identified, a charge to earnings would be
recorded. We have adopted the provisions of SFAS No. 141 and SFAS No. 142 as of
March 1, 2002. Although it does not affect our cash flow, an impairment charge
to earnings has the effect of decreasing our earnings. If we are required to
take a charge to earnings for goodwill impairment, our stock price could be
adversely affected.
Demand for medical staffing services is significantly affected by the general
level of economic activity and unemployment in the United States.
When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many
companies, including our hospital and healthcare facility clients, reduce their
use of temporary employees before laying off full-time employees. In addition,
we may experience more competitive pricing pressure during periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse impact on our condition and results of operations.
Business Conditions
Our business is dependent on the Company continuing to establish and maintain
close working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.
Attraction and Retention of Licensees and Employees
Maintaining quality licensees, managers and branch administrators will play
a significant part in the future success of the Company. The Company's
professional nurses and other health care personnel are also key to the
continued provision of quality care to patients of the Company's customers. The
possible inability to attract and retain qualified licensees, skilled management
and sufficient numbers of credentialed health care professional and
para-professionals and information technology personnel could adversely affect
the Company's operations and quality of service. Also, because the travel nurse
program is dependent upon the attraction of skilled nurses from overseas, such
program could be adversely affected by immigration restrictions limiting the
number of such skilled personnel who may enter and remain in the United States.
12
ITEM 2. PROPERTIES
----------
The Company's business leases its administrative facilities in Lake Success, New
York. The Lake Success office lease for approximately 13,770 square feet of
office space expires in December 2007 and provides for a current annual rent of
$346,047 and is subject to a 3.5% annual escalation. The Company believes that
its administrative facilities are sufficient for its needs and that it will be
able to obtain additional space as needed.
The Company's licensees lease substantially all of their locations from
landlords unaffiliated with the Company or any of its executive officers or
directors. There are currently 67 staffing offices including 28 operated by the
Company and 39 licensee staffing offices operated by 20 licensees. The licensee
offices are owned by licensees or are leased by the licensee from third-party
landlords. The Company believes that it will be able to renew or find adequate
replacement offices for all leases which are scheduled to expire within the next
twelve months at comparable costs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is subject to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of business. Management and
legal counsel periodically review the probable outcome of such proceedings, the
costs and expenses reasonably expected to be incurred, and the availability and
the extent of insurance coverage and established reserves. While it is not
possible at this time to predict the outcome of these legal actions, in the
opinion of management, based on these reviews and the disposition of the
lawsuits, these matters will not have a material effect on the Company's
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
13
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
(A) Market Information
The Company has outstanding two classes of common equity securities: Class A
Common Stock and Class B Common Stock. These two classes were created by a
recapitalization of the Company's Common Stock that was completed in October
1995. The Company's Class A Common Stock was traded in the over-the-counter
market and quoted on the OTC Bulletin Board System under the symbol "SBLI" until
August 2001 when the symbol was changed to "ATCHA" at the same time the Company
changed its name to ATC Healthcare, Inc. In March 2002, the Company's Class A
Common Stock commenced trading on the American Stock Exchange under the symbol
"AHN."
The following table sets forth, the high and low sale prices for the Class A
Common Stock for each quarter during the fiscal year ended February 28, 2003, as
reported by the American Stock Exchange and the high and low bid information for
the Class A Common Stock for each quarter during the fiscal year ended February
28, 2002, as quoted on the Over-the-Counter Bulletin Board. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
High Low
Fiscal Year Ended February 28, 2002
1st quarter ended May 31, 2001 $0.75 $0.26
2nd quarter ended August 31, 2001 0.99 0.56
3rd quarter ended November 30, 2001 1.33 0.55
4th quarter ended February 28, 2002 2.43 1.17
Fiscal Year Ended February 28, 2003
1st quarter ended May 31, 2002 $2.74 $2.00
2nd quarter ended August 31, 2002 2.42 0.70
3rd quarter ended November 30, 2002 1.11 0.80
4th quarter ended February 28, 2003 1.10 0.54
- ----------------------------------------------------------------------
There is no established public trading market for the Company's Class B Common
Stock, which has ten votes per share and upon transfer is convertible
automatically into one share of Class A Common Stock, which has one vote per
share.
(B) Holders
As of June 6, 2003, there were approximately 263 holders of record of Class A
Common Stock (including brokerage firms holding stock in "street name" and other
nominees) and 380 holders of record of Class B Common Stock.
14
(C) Dividends
The Company has never paid any dividends on its shares of Class A and Class B
Common Stock. The Company does not expect to pay any dividends for the
foreseeable future as all earnings will be retained for use in its business.
(D) Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category Number of Securities to Weighted-average exercise Number of Securities remaining
be issued upon exercise price of outstanding available for future issuance under
of outstanding options, options, equity compensation plans
warrants and rights (a) warrants and rights (excluding securites reflected in
column (a)
Equity compensation
plans approved by
security holders 4,671,182 $0.58 6,401,417
--------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders (1) 400,000 $1.02 3,000,000
--------------------------------------------------------------------------------------
Total 5,071,182 $0.59 9,401,417
- -------------------------------------------------------------------------------------------------------------
(1) During Fiscal 2001, the Company adopted a stock option plan (the "2000 Stock
Option Plan") under which an aggregate of three million shares of common stock
are reserved for issuance. Both key employees and non-employee directors except
for members of the compensation committee are eligible to participate in the
2000 Stock Option Plan.
(E) Recent Sales of Unregistered Securities
On February 26, 2003, the Company sold 1,200 shares of its 7% Convertible Series
A Preferred Stock ("the Preferred Stock") and received cash proceeds of
$600,000. The purchasers of the stock were two executive officers of the
Company. This stock is convertible to Common Stock at the price of $.73 per
share which is 120% of the weighted average market close price of the Company's
Common Stock for the ten day trading period ending on the date of the purchase
of the Convertible Preferred Stock.
15
ITEM 6.
- -------
SELECTED FINANCIAL DATA (in thousands, except per share data)
- -------------------------------------------------------------
The following table provides selected historical consolidated financial data of
the Company as of and for each of the fiscal years in the five year period ended
February 28, 2003. The data has been derived from the Company's audited
consolidated financial statements. Such information should be read in
conjunction with the Company's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which is contained in this report.
Feb. 28, 2003 Feb. 28, 2002 Feb. 28, 2001 Feb. 29, 2000 Feb. 28, 1999
CONSOLIDATED OPERATIONS DATA:
Revenues $148,720 $149,414 $120,840 $114,994 $94,694
----------------------------------------------------------------------
(Loss) income from continuing operations (2,833) 3,593 (1,066) (2,683) (369)
Loss from discontinued operations -- -- -- (557) (1,031)
----------------------------------------------------------------------
Net (loss) income $(2,833) $3,593 $(1,066) $(3,240) $1,400
======================================================================
(Loss) income per common share-basic
Income from continuing operations $(0.12) $0.15 $(0.05) $(0.11) $(0.02)
Loss from discontinued operations -- -- -- (0.03) (0.04)
----------------------------------------------------------------------
Net (loss) income $(0.12) $0.15 $(0.05) $(0.14) $(0.06)
======================================================================
(Loss) income per common share - diluted:
Income from continuing operations $(0.12) $0.14 $(0.05) $(0.11) $(0.02)
Loss from discontinued operations -- -- -- (0.03) (0.04)
----------------------------------------------------------------------
Net (loss) income $(0.12) $0.14 $(0.05) $(0.14) $(0.06)
======================================================================
Weighted average common shares outstanding:
Basic 23,783 23,632 23,632 23,623 23,162
Diluted 23,783 25,695 23,632 23,623 23,162
CONSOLIDATED BALANCE SHEET DATA:
Total assets $78,615 $75,329 $41,431 $39,607 $45,004
Long-term debt and other liabilities 55,790 50,177 21,059 16,049 25
Total liabilities 67,469 62,109 31,804 28,914 31,689
Stockholders' equity 10,546 13,220 9,627 10,693 13,315
ATC Healthcare, Inc. did not pay any cash dividends on its common stock during
any of the periods set forth in the table above. Certain prior period amounts
have been reclassified to conform with the Fiscal 2003 presentation.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 2003 ("FISCAL 2003"), FEBRUARY 28, 2002 ("FISCAL 2002")
AND FEBRUARY 28, 2001 ("FISCAL 2001")
Revenues: In the fiscal year ended February 28, 2003, the Company's sales
remained consistent with the sales in the prior fiscal year. Sales for Fiscal
2003 were $148.7 million in comparison to sales of $149.4 million for fiscal
2002. Same store sales for locations open during the last two fiscal years
decreased 8% due to the fact that demand for temporary nurses is going through a
unexpected short-term period of contraction as hospitals began experiencing flat
to declining admission rates in the fourth quarter of fiscal 2003. The decrease
was offset by sales from locations opened during the last two fiscal years.
While the fourth quarter of fiscal 2003 has a significant loss in sales,
management believes such volumes will begin to recover in the 2nd quarter of
fiscal 2004.
Sales for Fiscal 2002 increased $28.6 million or 23.6% compared to the Fiscal
2001. Sales for Fiscal 2002 were $149.4 million in comparison to $120.8 million
in Fiscal 2001. The increase in sales can be attributed to growth within
existing ATC locations, as well as the addition of 13 locations opened within
Fiscal 2002. Additionally, during Fiscal 2002, the Company noted a sharp
increase in sales for locations that the Company opened within Fiscal 2001.
Sales generated within those offices accounted for an increase of $9.8 million
for Fiscal 2002, or an increase of 242.2% over their sales levels for Fiscal
2001.
Service Costs: Service costs were 77.8%, 76.4% and 77.4% of total revenues in
Fiscal 2003, 2002 and 2001, respectively. The Company recorded an additional $.9
million charge in the fourth quarter of fiscal 2003 to increase its liability
for expected workers compensation claims. Service costs represent the direct
costs of providing services to patients or clients, including wages, payroll
taxes, travel costs, insurance costs, the cost of medical supplies and the cost
of contracted services.
General and Administrative Expenses: General and administrative expenses
decreased by approximately $.4 million to $29.5 million in Fiscal 2003 in
comparison to $29.9 million for Fiscal 2002. The Company experienced a reduction
in royalty expense because of the purchase of its largest licensee completed in
January 2002 which eliminated approximately $2.9 million of expense. This was
offset by increases in employee expenses relating to the Company's start up of
its own travel nurse division and the opening of new company owned locations.
Additionally, the Company increased its bad debt reserve in Fiscal 2003 to
reserve against potential receivable collectibility issues.
General and administrative expenses increased by approximately $4.8 million or
19.3% to $29.9 million in Fiscal 2002 from $25.0 million in Fiscal 2001. The
increase in general and administrative expenses for Fiscal 2002 is due primarily
to increased royalties paid to licensees as a result of increased sales levels
and to the increase in company-owned locations for which the Company incurs all
administrative costs.
Depreciation and Amortization: Depreciation and amortization expenses relating
to fixed assets and intangible assets was $2.0 million, $1.8 million and $1.7
million for Fiscal years 2003, 2002 and 2001, respectively.
Interest Expense, net: Interest expense, net was $3.3 million, $2.0 million and
$2.3 million in Fiscal 2003, 2002 and 2001, respectively. Interest expense
increased in Fiscal 2003 in comparison with Fiscal 2002 primarily because of
debt issued in connection with the purchase of the Company's largest licensee
in January 2002 and borrowings under an acquisition line provided by its primary
lender in June 2002. Interest expense decreased in Fiscal 2002 in comparison
with Fiscal 2001 because of lower prevailing interest rates associated with the
Company's new credit facility, which began in April 2002.
17
Provision Related to TLCS Guarantee - The Company is contingently liable on $2.3
million of obligations owed by TLCS which is payable over eight years. The
Company is indemnified by TLCS for any obligations arising out of these matters.
On November 8, 2002, TLCS filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code. As a result, the Company has recorded a provision
of $2.3 million representing the balance outstanding on the related TLCS
obligations. The Company has not received any demands for payment with respect
to these obligations. The next payment is due in September 2003. The obligation
is payable over 8 years. The Company believes that it has certain defenses which
could reduce or eliminate its recorded liability in this matter.
Loss on Extinguishment of Debt: During Fiscal 2002, the Company entered into a
new $25 million facility ("New Facility") with a lending institution. The
Company's previous credit facility was repaid in full concurrent with the
closing of the New Facility. In connection with the early extinguishment of its
debt, the Company wrote off the unamortized balance of deferred financing fees.
Provision (Benefit) for Income Taxes: The provision for income taxes reflects an
effective rate of (33.8)%, (154.1)% and 10.4% in Fiscal 2003, 2002, and 2001,
respectively.
Prior to the year ended February 28, 2002, the Company had provided a valuation
allowance for the full amount of its deferred tax assets, because of the
substantial uncertainties associated with the Company's ability to realize a
deferred tax benefit due to its financial condition. However, based on the
Company's current and expected continued profitability, the valuation allowance
of $3.0 million was eliminated in fiscal 2002.
Management believes that it is more likely than not that the Company's deferred
tax assets will be realized through future profitable operations. This is based
upon the fact that the company has had profitable operations in each of its
quarters since September 1, 2000 through the third quarter ended November 30,
2003, which quarterly results are profitable before a charge for the guarantee
of certain debt of a former related party, TLC. Losses incurred in the fourth
quarter of fiscal 2003 were due to an unexpected shortfall in hospital patient
volumes, which volumes appear to be returning in the second quarter of fiscal
2004. Management believes that it will return to profitable operations during
fiscal 2004 and, accordingly, it is more likely than not that it will realize
its deferred tax assets. As of February 28, 2003, the Company has a Federal net
operating loss of approximately $4.6 million which expires in 2020 through 2023.
18
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for Fiscal 2003 and 2002 are as
follows (in thousands, except per share data):
Year ended February 28, 2003 First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $37,699 $38,979 $38,282 $33,759
------------------------------------------------------------
Net (loss) income $427 $442 $(1,249) $(2,454)
============================================================
(Loss) earnings per common share-basic $0.02 $0.02 $(0.05) $(0.10)
============================================================
(Loss) earnings per common share-diluted $0.02 $0.02 $(0.05) $(0.10)
============================================================
Year ended February 28, 2002 First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $35,461 $38,561 $38,530 $36,862
------------------------------------------------------------
Net income $42 $510 $709 $2,332
============================================================
Earnings per common share - basic $0.00 $0.02 $0.03 $0.10
============================================================
Earnings per common share - diluted $0.00 $0.02 $0.03 $0.09
============================================================
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $.5 million in Fiscal 2003, which
consisted primarily of the decrease in deferred tax liability of $1.6 million,
increase in TLCS liability of $2.3 million and depreciation and amortization of
$2.2 million offset by the net loss of $2.8 million and increase in prepaid and
other assets of $2.7 million.
Net cash used in investing activities was $2.4 million in Fiscal 2003, which
consisted of acquisitions of property and equipment of $417 thousand and
business acquisitions of $2 million.
Net cash provided by financing activities was $1.2 million in Fiscal 2003, which
consisted of borrowing under the term loan facility of $1.4 million, book
overdraft of $2.6 million, offset by repayment of notes and capital lease
obligations of $2.9 million
Net cash used in operating activities was $1.5 million in Fiscal 2002, which
consisted primarily of the decrease in accounts payable, accrued expenses and
accrued payroll and related expenses of $3.0 million, the increase in deferred
tax benefit of $2.3 million and the increase in accounts receivable of $1.6
million offset by net income of $3.6 million and depreciation of $1.9 million.
Net cash used in investing activities was $.7 million in Fiscal 2002, which
consisted of $.3 million for the acquisition of Doctors' Corner and Healthcare
Staffing, Inc. and $.5 million for fixed asset additions.
Net cash provided by financing activities was $1.5 million in Fiscal 2002, which
consisted of $23.6 million provided from borrowings under its new credit
facility offset by $20.9 million used to repay the previous credit facility, $.8
million in repayments of notes and lease obligations and $.4 million in payments
of debt issuance costs.
19
In April 2001, the Company obtained a new financing facility ("New Facility")
with a new lending institution for a $25 million, three year term, revolving
loan. The New Facility limit was increased to $27.5 million in October 2001. The
New Facility was used to repay borrowings under the Company's then existing
facility (the "Facility"). Under the New Facility, the Company may borrow
amounts up to 85% of the Company's eligible accounts receivable subject to a
maximum of $27.5 million. Interest on borrowings under the New Facility is at
the annual rate of 3.65% over LIBOR in addition to a .5% annual fee for the
unused portion of the total loan availability. The Company recorded a charge of
approximately $500 thousand (net of an income tax benefit of $300 thousand) in
the first quarter of the fiscal year ended February 2002 as a result of the
write-off of previously deferred costs and an early prepayment fee associated
with termination of the Facility.
In November 2002, the lending institution with which the Company has the New
Facility, increased the revolving credit line to $35 million and provided for an
additional term loan facility totaling $5 million. Interest accrues at a rate of
3.95% over LIBOR on the revolving credit line and 6.37% over LIBOR on the term
loan facility. The New Facility expires in November 2005. The term loan facility
is for acquisitions and capital expenditures. Repayment of this additional term
facility will be on a 36 month straight line amortization.
In November 2002, the interest rates were revised to 4.55% over LIBOR on the
revolving line and 7.27% over LIBOR on the term loan facility as part of a loan
modification.
On June 13, 2003, the Company received a waiver from the lender for
non-compliance of certain Facility covenants as of February 28, 2003. Interest
rates on both the revolving line and term loan facility were increased 2% and
can decrease if the Company meets certain financial criteria. In addition,
certain financial ratio covenants were modified. The additional interest is not
payable until the current expiration date of the Facility which is November
2005. As part of this modification, the lender and the DSS and DSI noteholders
amended the subordination agreement.(See note 7) As a result of that amendment,
the two series of promissory notes to the former owners of DSS and DSI have been
condensed into one series of notes. One of the notes is for a term of seven
years, with a minimum monthly payment (including interest) of $40,000 in year
one and minimum monthly payments of $80,000 in subsequent years, with a balloon
payment of $3,700,000 in year 4. The remaining balance on the first note after
the balloon payment is payable over the remaining 3 years of the note, subject
to limitations. The other three notes are for ten years, with minimum monthly
payments (including interest) of $25,000 in the aggregate in the first year and
minimum monthly payments of $51,000 in the aggregate for the remaining years.
Any unpaid balance at the end of the note term will be due at that time.
Additional payments may be made to the noteholders if the Company achieves
certain financial ratios. In conjunction with this revision, one of the note
holders has agreed to reduce their note by approximately $2,800,000 contingent
upon the Company's compliance under the modified subordination agreement.
The Company's working capital was $18.9 million at both February 28, 2003 and
February 28, 2002, respectively.
The Company anticipates that capital expenditures for furniture and equipment,
including improvements to its management information and operating systems
during the next twelve months will be approximately $200 thousand.
INDEBTEDNESS AND CONTRACTUAL OBLIGATIONS OF THE COMPANY
The following are contractual cash obligations of the Company at February 28,
2003:
Payments due by period (amounts in thousands)
Less than 1-2 3-4
Total One Year Years Years Thereafter
Bank Financing $ 24,928 $ 679 $ 24,249 $ -- $ --
Long-term debt 32,359 896 5,585 7,239 18,639
Operating leases 4,796 1,384 2,068 1,287 57
---------- ---------- ---------- --------- ----------
Total $ 62,083 $ 2,959 $ 31,902 $ 8,526 $ 18,696
========== ========== ========== ========= ==========
Management believes that working capital generated from operations, together
with other credit facilities, will be sufficient to meet the currently
anticipated working capital and capital expenditure requirements of our
operations.
20
BUSINESS TRENDS
Sales and margins have been under pressure as demand for temporary nurses is
currently going through a period of contraction. Hospitals are experiencing flat
to declining admission rates and are placing greater reliance on full-time staff
overtime and increased nurse patient loads. Because of difficult economic times,
nurses in many households are becoming the primary breadwinner, causing them to
seek more traditional full time employment. The U.S. Department of Health and
Human Services said in a July 2002 report that the national supply of full-time
equivalent registered nurses was estimated at 1.89 million and demand was
estimated at 2 million. The 6 percent gap between the supply of nurses and
vacancies in 2000 is expected to grow to 12 percent by 2010 and then to 20
percent five years later. As the economy rebounds, the prospects for the medical
staffing industry should improve as hospitals experience higher admission rates
and increasing shortages of healthcare workers.
CRITICAL ACCOUNTING POLICIES
Management's discussion in this Item 7 addresses the Company's consolidated
financial statements which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and
judgments, including those related to bad debts, intangible assets, income
taxes, workers' compensation, and contingencies and litigation. Management bases
its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The Company determines a
need for a valuation allowance to reduce its deferred tax assets to the amount
that it believes is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would not be able to realize all or a part of
its net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was made.
The Company believes the following are its most critical accounting policies in
that they are the most important to the portrayal of the Company's financial
condition and results of operations and require management's most difficult,
subjective or complex judgments
21
Allowance for Doubtful Accounts
The Company regularly monitors and assesses its risk of not collecting amounts
owed to it by its customers. This evaluation is based upon an analysis of
amounts currently and past due along with relevant history and facts particular
to the customer. Based upon the results of this analysis, the Company records an
allowance for uncollectible accounts for this risk. This analysis requires the
Company to make significant estimates, and changes in facts and circumstances
could result in material changes in the allowance for doubtful accounts.
Goodwill Impairment
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. The Company adopted Statement of
Financial Accounting Standards No. 141, "Business Combinations," ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and
Intangible Assets," ("SFAS 142") as of March 1, 2002. SFAS 141 provides specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill. SFAS 142 requires that (1) goodwill and intangible assets with
indefinite useful lives should no longer be amortized, (2) goodwill and
intangibles must be reviewed for impairment annually (or more often if certain
events occur which could impact their carrying value), and (3) the Company's
operations be formally identified into reporting units for the purpose of
assessing impairments of goodwill. Other definite lived intangibles, primarily
customer lists and non-compete agreements, are amortized on a straightline basis
over periods ranging from 3 to 10 years.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
"Rescission of FAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical
Corrections as of April 2002". This Statement amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions as well as other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. SFAS No. 145 is effective for fiscal years beginning
after December 31, 2002. The Company has adopted SFAS No. 145 in fiscal 2003 and
has reclassified the 2002 extraordinary loss on early extinguishment of debt
to interest and other expenses.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 is effective for fiscal years beginning after
December 31, 2002. The Company does not anticipate that the adoption of SFAS No.
146 will have a material impact on the consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure" that amends FASB Statement No. 123
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 amends the
disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reporting results. SFAS No.
148 is effective for fiscal years ending after December 15, 2002. The adoption
of SFAS No. 148, except for the disclosure requirements, had no impact on the
consolidated financial statements. The additional required disclosure is found
in footnote 11.
22
In November 2002, the FASB issued Interpretation 45 (FIN 45), Guarantor s
accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 applies prospectively to guarantees
issued or modified subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after December 15,
2002. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, ("FAS 150"). This statement establishes standards
for how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. In accordance with the standard, financial instruments that embody
obligations for the issuer are required to be classified as liabilities. This
Statement shall be effective for financial instruments entered into or modified
after May 31, 2003, and otherwise shall be effective at the beginning of the
first interim period beginning after June 15, 2003. The Company is currently
assessing the impact of this statement.
EFFECT OF INFLATION
The impact of inflation on the Company's sales and income from continuing
operations was immaterial during Fiscal 2003. In the past, the effects of
inflation on salaries and operating expenses have been offset by the Company's
ability to increase its charges for services rendered. The Company anticipates
that it will be able to continue to do so in the future. The Company continually
reviews its costs in relation to the pricing of its services.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. From time to time, the Company also provides
forward-looking statements in other materials it releases to the public as well
as oral forward-looking statements. These statements are typically identified by
the inclusion of phrases such as "the Company anticipates", "the Company
believes" and other phrases of similar meaning. These forward looking statements
are based on the Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements expressed or implied by such
forward-looking statements. The potential risks and uncertainties which would
cause actual results to differ materially from the Company's expectations
include, but are not limited to, those discussed in the section entitled
"Business - Risk Factors". Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including Quarterly Reports on Form 10-Q to be filed by the Company in the
fiscal year 2004.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity: The Company's primary market risk exposure is
interest rate risk. The Company's exposure to market risk for changes in
interest rates relates to its debt obligations under its New Facility described
above. Under the New Facility, the interest rate is 4.55% over LIBOR. At
February 28, 2003, drawings on the Facility were $24.2 million. Assuming
variable rate debt at February 28, 2003, a one point change in interest rates
would impact annual net interest payments by $242 thousand. The Company does not
use derivative financial instruments to manage interest rate risk.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
ATC HEALTHCARE, INC. AND SUBSIDIARIES
- -------------------------------------
INDEX
- -----
Page
Report of Independent Accountants F-1
Independent Auditors' Report F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
February 28, 2003 and 2002 F-3
Consolidated Statements of Operations
for the Years ended February 28, 2003,
2002 and 2001 F-4
Consolidated Statements of Stockholders' Equity
for the Years ended February 28, 2003,
2002 and 2001 F-5
Consolidated Statements of Cash Flows
for the Years ended February 28, 2003,
2002 and 2001 F-6
Notes to Consolidated Financial Statements F-8
FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
FEBRUARY 28, 2003, 2002 AND 2001
II - Valuation and Qualifying Accounts F-26
All other schedules were omitted because they are not required, not applicable
or the information is otherwise shown in the financial statements or the notes
thereto.
24
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders of ATC Healthcare, Inc. and
Subsidiaries:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of ATC
Healthcare, Inc. and Subsidiaries as of February 28, 2003 and 2002, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule for the
years ended February 28, 2003 and 2002 listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, the Company changed the manner in which it accounts for
goodwill and other intangible assets upon adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", on March
1, 2002.
PricewaterhouseCoopers LLP
Melville, New York
May 12, 2003, except for the last paragraph of Note 6 as to which the date is
June 13, 2003.
F-1
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Stockholders and Board of Directors
of ATC Healthcare, Inc.:
We have audited the accompanying consolidated statement of operations,
stockholders' equity and cash flows of ATC Healthcare, Inc. and subsidiaries
(the "Company") for the year ended February 28, 2001. Our audit also included
the financial statement schedule listed in the Table of Contents for the year
ended February 28, 2001. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of ATC Healthcare, Inc. and subsidiaries for the years ended February 28,
2001 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement schedule for
the year ended February 28, 2001, when considered in relation to the basic 2001
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Jericho, New York
May 17, 2001
F-2
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
February 28,
ASSETS 2003 2002
CURRENT ASSETS:
Cash and cash equivalents $ 585 $ 1,320
Accounts receivable, less allowance for
doubtful
accounts of $1,784 and $830,
respectively 26,876 28,683
Deferred income taxes 1,787 479
Prepaid expenses and other current assets 3,087 373
--------- ---------
Total current assets 32,335 30,855
Fixed assets, net 2,670 3,629
Intangibles 7,186 7,099
Goodwill 33,449 31,203
Deferred income taxes 2,076 1,800
Other assets 899 743
--------- ---------
Total assets $ 78,615 $ 75,329
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,332 $ 981
Accrued expenses 6,192 6,439
Book overdraft 2,580 --
Current portion of due under bank financing 679 --
Current portion of notes and guarantee
payable 896 4,512
--------- ---------
Total current liabilities 11,679 11,932
Notes and guarantees payable 31,463 26,430
Due under bank financing 24,249 23,600
Other liabilities 78 147
--------- ---------
Total liabilities 67,469 62,109
--------- ---------
Commitments and contingencies
Convertible Series A Preferred Stock ($.01
par value
4,000 shares authorized, 1,200 shares
issued and outstanding) 600 --
--------- ---------
STOCKHOLDERS' EQUITY:
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 23,582,552 and
23,368,943 shares issued and outstanding at
February 28, 2003 and 2002, respectively 235 233
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 256,191 and
262,854 shares issued and outstanding at
February 28, 2003 and 2002, respectively 3 3
Additional paid-in capital 13,679 13,522
Accumulated deficit (3,371) (538)
--------- ---------
Total stockholders' equity 10,546 13,220
--------- ---------
Total liabilities and
stockholders' equity $ 78,615 $ 75,329
========= =========
See notes to consolidated financial statements
F-3
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Fiscal Years Ended
February 28, 2003 February 28, 2002 February 28, 2001
REVENUES:
Service revenues $ 148,720 $ 149,414 $ 120,840
---------------- ---------------- ----------------
COSTS AND EXPENSES:
Service costs 115,694 114,225 93,559
General and administrative expenses 29,458 29,879 25,038
Depreciation and amortization 2,037 1,753 1,742
---------------- ---------------- ----------------
Total operating expenses 147,189 145,857 120,339
---------------- ---------------- ----------------
INCOME FROM OPERATIONS 1,531 3,557 501
INTEREST AND OTHER EXPENSES (INCOME):
Interest expense, net 3,255 2,037 2,257
Other (income) expense, net 260 (748) (790)
Provision related to TLCS guarantee 2,293 -- --
Loss on early extinguishment of debt -- 854
---------------- ---------------- -----------------
Total interest and other expenses 5,808 2,143 1,467
---------------- ---------------- ----------------
(LOSS) INCOME BEFORE INCOME TAXES (4,277) 1,414 (966)
INCOME TAX (BENEFIT) PROVISION (1,444) (2,179) 100
---------------- ---------------- ----------------
NET (LOSS) INCOME $ (2,833) $ 3,593 $ (1,066)
================ ================ ================
(LOSS) EARNINGS PER COMMON SHARE - BASIC: $ (0.12) $ 0.15 $ (0.05)
================ ================ ================
(LOSS) EARNINGS PER COMMON SHARE - DILUTED:$ (0.12) $ 0.14 $ (0.05)
================ ================ ================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 23,783 23,632 23,632
================ ================ ================
Diluted 23,783 25,695 23,632
================ ================ ================
See notes to consolidated financial statements
F-4
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
Balances, February 29, 2000 23,331,252 $ 233 300,545 $ 3 $ 13,522 $ (3,065) $ 10,693
Exchange of Class B for Class A Common
Stock 26,530 -- (26,530) -- -- -- --
Net loss -- -- -- -- -- (1,066) (1,066)
----------- ------ --------- ------- ---------- ----------- ----------
Balances, February 28, 2001 23,357,782 233 274,015 3 13,522 (4,131) 9,627
Exchange of Class B for Class A Common
Stock 11,161 -- (11,161) -- -- -- --
Net income --. -- -- -- -- 3,593 3,593
----------- ------ --------- ------- ---------- ----------- ----------
Balances, February 28, 2002 23,368,943 233 262,854 3 13,522 (538) 13,220
Exchange of Class B for Class A Common
Stock 6,663 -- (6,663) -- -- -- --
Exercise of stock options 103,333 1 -- -- 51 -- 52
Issuance of shares through Employee
Stock
Purchase Plan 103,613 1 -- -- 106 -- 107
Net loss -- -- -- -- -- (2,833) (2,833)
----------- ------ --------- ------- ---------- ----------- ----------
Balances, February 28, 2003 23,582,552 $ 235 256,191 $ 3 13,679 $ (3,371) $ 10,546
=========== ====== ========= ======= ========== =========== ==========
See notes to consolidated financial statements
F-5
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Fiscal Years Ended
February 28, February 28, February 28,
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,833) $ 3,593 $ (1,066)
Adjustments to reconcile net (loss) income to
net cash provided by
(used in) operations:
Depreciation and amortization 2,261 1,890 1,973
Provision related to TLCS guarantee 2,293 -- --
Extraordinary loss on early extinguishment of
debt -- 854 --
Provision for doubtful accounts 954 (514) (1,184)
Deferred income taxes (1,584) (2,280) --
In-kind interest 886 72 --
Write-off of other intangibles -- -- 190
Changes in operating assets and liabilities,
net of effects of acquisitions
Accounts receivable 853 (1,600) 268
Prepaid expenses and other current assets (2,714) (176) 83
Other assets 108 (293) 45
Accounts payable and accrued expenses 269 (3,006) (2,442)
Other long-term liabilities (14) 7 83
------------ ------------ -----------
Net cash provided by (used in) operating
activities 479 (1,453) (2,050)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (417) (458) (585)
Acquisition of businesses (2,071) (320) --
Notes receivable from licensees (33) -- (268)
Other 108 85 37
------------ ------------ -----------
Net cash used in investing activities (2,413) (693) (816)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings under previous credit facility -- (20,936) (15,149)
Borrowings under new credit facility 1,417 23,600 20,636
Payment of notes and capital lease obligations (2,948) (798) (283)
Repayment of term loan facility (87) -- --
Payment of debt issuance costs (520) (413) (719)
Book overdraft 2,580 -- --
Issuance of common and preferred stock 757 -- --
------------ ------------ -----------
Net cash provided by financing activities 1,199 1,453 4,485
------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (735) (693) 1,619
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,320 2,013 394
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 585 $ 1,320 $ 2,013
============ ============ ===========
See notes to consolidated financial statements
F-6
SUPPLEMENTAL DATA: For the Fiscal Years Ended
February 28,February 28,February 28,
2003 2002 2001
Cash paid for:
Interest $ 2,081 $ 2,020 $ 2,401
========== ========== ===========
Income taxes $ 71 $ 142 $ 26
========== ========== ===========
Supplemental schedule of noncash investing and
financing activities:
Fair value of assets acquired $ 3,041 $ 31,290 $ --
Notes issued in connection with acquisition of
businesses 970 30,970 --
---------- ---------- -----------
Net cash paid $ 2,071 $ 320 $ --
========== ========== ===========
Fixed assets acquired through capital leases $ -- $ 97 $ 45
========== ========== ===========
F-7
ATC HEALTHCARE, INC. AND SUBSIDIARIES
- -------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
ATC Healthcare, Inc. and subsidiaries, including ATC Healthcare Services, Inc.
and ATC Staffing Services, Inc, (collectively the "Company") are providers of
supplemental staffing to health care facilities. In August 2001, the Company
changed its name from Staff Builders, Inc. to ATC Healthcare, Inc. The Company
offers a skills list of qualified health care associates in over 60 job
categories ranging from the highest level of specialty nurse including critical
care, neonatal and labor and delivery, to medical administrative staff,
including third party billers, administrative assistants, claims processors,
collection personnel and medical records clerks. The nurses provided to clients
include registered nurses, licensed practical nurses and certified nursing
assistants.
During October 1999, the Company separated its home health care business from
its existing staffing business. To accomplish this separation, the Board of
Directors established a new, wholly-owned subsidiary, Tender Loving Care Health
Care Services, Inc ("TLCS"), which acquired 100% of the outstanding capital
stock of the subsidiaries engaged in the home health care business. The spin-off
was effected through a pro-rata distribution to the Company's stockholders of
all the shares of common stock of TLCS owned by the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's Class A and Class B common stock
outstanding.
The accompanying consolidated financial statements reflect the financial
position, results of operations, changes in stockholders' equity and cash flows
of the Company as if it were a separate entity for all periods presented. The
consolidated financial statements have been prepared using the historical basis
of assets and liabilities and historical results of operations related to the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after the elimination of all significant
intercompany balances and transactions and include the results of operations of
purchased businesses from the respective dates of acquisition.
Revenue Recognition
A substantial portion of the Company's service revenues are derived from a
unique form of franchising under which independent companies or contractors
("licensees") represent the Company within a designated territory. These
licensees assign Company personnel, including registered nurses and therapists,
to service clients using the Company's trade names and service marks. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, bills the customers and receives and processes the accounts
receivable. The revenues and related direct costs are included in the Company's
consolidated service revenues and operating costs. The licensees are responsible
for providing an office and paying related expenses for administration,
including rent, utilities and costs for administrative personnel.
F-8
The Company pays a monthly distribution or commission to its domestic licensees
based on a defined formula of gross profit generated. Generally, the Company
pays a licensee approximately 55% (60% for certain licensees who have longer
relationships with the Company). There is no payment to the licensees based
solely on revenues. For Fiscal 2003, 2002 and 2001, total licensee distributions
were approximately $9,100, $16,900 and $14,400, respectively, and are included
in the general and administrative expenses.
Two of the Company's largest licensees, Direct Staffing, Inc. and DSS Staffing
Corp., were owned by one unrelated third party and by a son and two sons-in-law
of the President and Chairman of the Board of Directors of the Company. Such
licensees were paid (gross licensee fees) approximately $6,527 and $5,263 in
fiscal 2002 and 2001, respectively.
The Company recognizes revenue as the related services are provided to customers
and when the customer is obligated to pay for such completed services. Revenues
are recorded net of contractual or other allowances to which customers are
entitled. Employees assigned to particular customers may be changed at the
customer's request or at the Company's initiation. A provision for uncollectible
and doubtful accounts is provided for amounts billed to customers which may
ultimately be uncollectible due to billing errors, documentation disputes or the
customer's inability to pay.
Revenues generated from the sales of licensees and initial licensee fees are
recognized upon signing of the licensee agreement, if collectibility of such
amounts is reasonably assured, since the Company has performed substantially all
of its obligations under its licensee agreements by such date. In circumstances
where a reasonable basis does not exist for estimating collectibility of the
proceeds of the sales of licensees and initial license fees, such amounts are
deferred and recognized as collections are made, or until such time that
collectibility is reasonably assured. At February 28, 2003 and 2002, the Company
had notes receivable from licensees of $169 and $287, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses as well as the disclosure of contingent
assets and liabilities in the financial statements. Actual results could differ
from those estimates. The most significant estimates relate to the
collectibility of accounts receivable, obligations under workers' compensation
and valuation allowances on deferred taxes.
Cash and Cash Equivalents
Cash and cash equivalents include liquid investments with original maturities of
three months or less.
Concentration of Credit Risk
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across a
number of geographic areas. However, essentially all trade receivables are
concentrated in the hospital and health care sectors in the United States and,
accordingly, the Company is exposed to their respective business, economic and
country-specific variables. Although the Company does not currently foresee a
concentrated credit risk associated with these receivables, repayment is
dependent upon the financial stability of these industry sectors.
F-9
Fixed Assets
Fixed assets, consisting of equipment (primarily computer hardware and
software), furniture and fixtures, and leasehold improvements, are stated at
cost and depreciated from the date placed into service over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the shorter of the lease term or estimated useful life of the
improvement. Maintenance and repairs are charged to expense as incurred;
renewals and improvements which extend the life of the asset are capitalized.
Gains or losses from the disposition of fixed assets are reflected in operating
results.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards Board ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Company periodically reviews its fixed assets to
determine if any impairment exists based upon projected, undiscounted net cash
flows of the Company. As of February 28, 2003, the Company believes that no
impairment of long-lived assets exists. During fiscal 2001, the Company recorded
impairment losses of approximately $190.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. The Company adopted Statement of
Financial Accounting Standards No. 141, "Business Combinations," ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and
Intangible Assets," ("SFAS 142") as of March 1, 2002. SFAS 141 provides specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill. SFAS 142 requires that (1) goodwill and intangible assets with
indefinite useful lives should no longer be amortized, (2) goodwill and
intangibles must be reviewed for impairment annually (or more often if certain
events occur which could impact their carrying value), and (3) the Company's
operations be formally identified into reporting units for the purpose of
assessing impairments of goodwill. Prior to 2002, goodwill was amortized on a
straightline basis over 15 years. Goodwill amortization for the years ended
February 28, 2002 and 2001 was $499. Other definite lived intangibles, primarily
customer lists and non-compete agreements, are amortized on a straightline basis
over periods ranging from 3 to 10 years.
In accordance with SFAS 142, the Company has performed a transitional impairment
test as of March 1, 2002 and its annual impairment test at the end of the year
for its unamortized goodwill. As a result of the impairment tests performed, no
impairment was noted at the date of the adoption of SFAS 142 or at February 28,
2003.
Goodwill and other intangibles are as follows:
February 28, 2003 February 28, 2002
------------------------------- -------------------------------
Gross carrying Accumulated Gross carrying Accumulated Amortization
amount Amortization amount Amortization Period
-------------- ------------- -------------- ------------- ------------
Goodwill $ 36,389 $ 2,940 $ 34,149 $ 2,946 none
Customer lists 6,400 480 6,400 -- 10
Covenants not to complete 900 246 800 124 3-10
Other intangibles 672 60 23 -- 5-10
------------------------------------------------------------
$ 44,361 $ 3,726 $ 41,372 $ 3,070
============================================================
F-10
Amortization expense was $662, $623 and $499 for fiscal 2003, 2002 and 2001,
respectively.
Estimated amortization expense for the next five fiscal years is as follows:
Estimated amortization expense:
- -------------------------------
For year ended February 28, 2004 $903
For year ended February 29, 2005 $903
For year ended February 28, 2006 $878
For year ended February 28, 2007 $870
For year ended February 28, 2008 $812
As required by SFAS 142, the results for fiscal 2002 and 2001 have not been
restated. A reconciliation of net income, as if SFAS 142 had been adopted in
fiscal 2002 and 2001, is presented below:
For the years
ended February 28,
--------------------------------
2003 2002 2001
---- ---- ----
Reported (loss) income $(2,833) $3,593 $(1,066)
Addback: goodwill amortization, net of tax 294 294
----------------------------------
Adjusted net (loss) income $(2,833) $3,887 $ (772)
====================================
Basic earnings per share:
Reported net (loss)income $ (.12) $ .15 $ (.05)
Addback: goodwill amortization, net of tax .01 .01
---------------------------------
Adjusted net (loss) income $ (.12) $ .16 $ (.04)
=================================
Diluted earnings per share:
Reported net (loss) income $ (.12) $ .14 $ (.05)
Addback: goodwill amortization, net of tax .01 .01
---------------------------------
Adjusted net (loss) income $ (.12) $ .15 $ (.04)
=================================
Insurance Costs
The Company is obligated for certain costs under various insurance programs,
including workers' compensation. The Company recognizes its obligations
associated with these policies in the period the claim is incurred. The costs of
both reported claims and claims incurred but not reported, up to specified
deductible limits, are estimated based on historical data, current enrollment
statistics and other information. Such estimates and the resulting reserves are
reviewed and updated periodically, and any adjustments resulting there from are
reflected in earnings currently.
F-11
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding for the applicable period. Diluted earnings (loss) per
share is computed using the weighted average number of common shares plus common
equivalent shares outstanding, unless the inclusion of such common equivalent
shares would be anti-dilutive. Dilutive earnings per share include common stock
equivalents of 2,063 shares related to outstanding stock options in fiscal 2002.
In fiscal 2003 and 2001 common stock equivalents would have been anti-dilutive.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable, amounts due under bank financing and acquisition notes payable
approximate fair value.
Advertising
Advertising costs, which are expensed as incurred were $1,088, $787 and $362 in
fiscal 2003, 2002 and 2001, respectively, and are included in general and
administrative expenses.
Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
"Rescission of FAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical
Corrections as of April 2002". This Statement amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions as well as other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The Company has adopted SFAS No. 145 in fiscal 2003
and has reclassified the 2002 extraordinary loss on early extinguishment of debt
to interest and other expenses.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 is effective for fiscal years beginning after
December 31, 2002. The Company does not anticipate that the adoption of SFAS No.
146 will have a material impact on the consolidated financial statements.
F-12
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure" that amends FASB Statement No. 123
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 amends the
disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reporting results. SFAS No.
148 is effective for fiscal years ending after December 15, 2002. The adoption
of SFAS No. 148, except for the disclosure requirements, had no impact on the
consolidated financial statements. The additional required disclosure is
included in footnote 10.
In November 2002, the FASB issued Interpretation 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 applies prospectively to guarantees
issued or modified subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after December 15,
2002.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, ("FAS 150"). This statement establishes standards for
how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. In accordance with the standard, financial instruments that embody
obligations for the issuer are required to be classified as liabilities. This
Statement shall be effective for financial instruments entered into or modified
after May 31, 2003, and otherwise shall be effective at the beginning of the
first interim period beginning after June 15, 2003. The Company is currently
assessing the impact of this statement.
Reclassifications
Certain reclassifications have been made to the prior years financial statement
amounts to conform to the current years presentation.
3. ACQUISITIONS
In October 2001, the Company acquired substantially all of the assets of
Doctors' Corner and Healthcare Staffing, Inc. which are providers of both
permanent and temporary medical administrators in Southern California. The
purchase price was $1,075, of which $300 was paid at closing, $100 was paid on
January 1, 2002, $100 was paid on April 1, 2002 and the remaining $575 is
payable in 20 quarterly installments beginning July 1, 2002. The purchase price
included a covenant not to compete for $500. The remaining purchase price was
allocated to goodwill whose amortization will be deductible for tax purposes.
F-13
In January 2002, the Company purchased substantially all of the assets of Direct
Staffing, Inc. ("DSI"), a licensee of the Company serving the territory
consisting of Westchester County, New York and Northern New Jersey, and DSS
Staffing Corp. ("DSS"), a licensee of the Company serving New York City and Long
Island, New York for a purchase price of $30,195. These two licensees were owned
by an unrelated third party and by a son and two sons-in-law of the Company's
Chairman of the Board of Directors who have received an aggregate 60% of the
proceeds of the sale. The Company will be required to pay contingent
consideration equal to the amount by which (a) the product of (i) Annualized
Revenues (as defined in the purchase agreement) and (ii) 5.25 exceeds (b)
$17,220, but if and only if the resulting calculation exceeds $20 million.
The company has obtained a valuation on the tangible and intangible assets
associated with the transaction and has allocated $6,400 to customer lists
(which is being amortized over 10 years), $200 to a covenant not to complete
(which is being amortized over 8 years) and the remaining balance to goodwill.
The purchase price is evidenced by two series of promissory notes issued to each
of the four owners of DSS and DSI. The first series of notes (the "First
Series"), in the aggregate principal amount of $12,975, bears interest at 5% per
annum and is payable in 36 consecutive equal monthly installments of principal,
together with interest thereon, with the first installment having become due on
March 1, 2002. The second series of notes (the "Second Series"), in the
aggregate principal amount of $17,220, bears interest at the rate of 5% per
annum and is payable as follows: $11 million, together with interest thereon, on
April 30, 2005 (or earlier if certain capital events occur prior to such date)
and the balance in 60 consecutive equal monthly installments of principal,
together with interest thereon, with the first installment becoming due on April
30, 2005. If the contingent purchase price adjustment is triggered on April 30,
2005, then the aggregate principal balance of the Second Series shall be
increased by such contingent purchase price. Payment of the First Series and the
Second Series is collateralized by a second lien on the assets of the acquired
licensees (See Note 7).
In June 2002, the Company bought out a management contract with a company
("Travel Company") which was managing it's travel nurse division. The purchase
price of $620 is payable over two years beginning in December 2002. The Travel
Company had received payments from the Company of $702 and $1,362 for fiscal
years ended February 28, 2003 and 2002, respectively, for its management of the
travel nurse division. The Company is amortizing the cost of the buyout over the
five years that were remaining on the management contract.
During fiscal 2003, the Company purchased substantially all of the assets and
operations of 8 temporary medical staffing companies totaling $3,041, of which
$2,071 was paid in cash and the remaining balance is payable under notes payable
with maturities through January 2007. The notes bear interest at rates between
6% to 8% per annum. The purchase prices were allocated primarily to goodwill
(approximately $2,282).
The acquisitions were accounted for under the purchase method of accounting; and
accordingly, the accompanying consolidated financial statements include the
results of the acquired operations from their respective acquisition dates.
F-14
The table below reflects unaudited pro forma combined results of the Company, as
if the acquisitions had taken place on March 1, 2001. The unaudited pro forma
financial information does not purport to be indicative of the results of
operations that would have occurred had the transactions taken place at the
beginning of the periods presented or of future results of operations.
February 28
2003 2002
Net revenues $161,625 $157,586
Income from operations 2,178 5,672
Net (loss) income (2,451) 4,103
(Loss) earnings per share:
Basic $(0.10) $0.17
Diluted $(0.10) $0.16
4. FIXED ASSETS
Fixed assets consist of the following:
Estimated Useful February 28,
Life in Years 2003 2002
Computer equipment and software 3 to 5 $7,080 $6,832
Office equipment, furniture and fixtures 5 558 541
Leasehold improvements 5 218 66
--------------- ----------------
7,856 7,439
Less: accumulated depreciation
and amortization 5,186 3,810
--------------- ----------------
$2,670 $3,629
=============== ================
As of February 28, 2003 and 2002, fixed assets include amounts for equipment
acquired under capital leases with an original cost of $1,529. Depreciation
expense was $1,376, $1,217 and $1,231 in 2003, 2002 and 2001, respectively. The
accumulated amortization on equipment acquired under capital lease obligations
was $988 and $682 as of February 28, 2003 and 2002, respectively.
F-15
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
February 28,
2003 2002
Payroll and related taxes $ 1,518 $ 3,440
Accrued licensee payable 1,123 1,544
Insurance accruals 2,871 571
Interest payable 232 161
Other 448 723
---------- ----------
Total $ 6,192 $ 6,439
========== ==========
6. FINANCING ARRANGEMENTS
Prior to April, 2001, the Company borrowed under a financing facility
("Facility") with a lending institution (the "Lender") for $20 million. The term
of the Facility was for three years and bore interest at a rate of prime plus
3%. The Facility was collateralized by all of the Company's assets.
During April 2001, the Company entered into a Financing Agreement with a
lending institution, whereby the lender agreed to provide a revolving credit
facility of up to $25 million. The Financing Agreement was amended in October
2001 to increase the facility to $27.5 million. Amounts borrowed under the New
Financing Agreement were used to repay $20,636 of borrowing on its existing
facility. As a result, the Company recognized a loss of approximately $850
(before a tax benefit of $341), which includes the write-off of deferred
financing costs and an early termination fee.
Availability under the Financing Agreement is based on a formula of eligible
receivables, as defined in the Financing Agreement. The borrowings bear interest
at rates based on LIBOR plus 3.65%. At February 28, 2002, the interest rate was
5.65%. Interest rates ranged from 5.4% to 8.2% in fiscal 2002. An annual fee of
0.5% is required based on any unused portion of the total loan availability.
In November 2002, the lending institution with which the Company has the secured
facility, increased the revolving credit line to $35 million and provided for an
additional term loan facility totaling $5 million. Interest accrues at a rate of
3.95% over LIBOR on the revolving credit line and 6.37% over LIBOR on the term
loan facility. The Facility expires in November 2005. The term loan facility is
for acquisitions and capital expenditures. Repayment of this additional term
facility will be on a 36 month straight line amortization.
The Agreement contains various restrictive covenants that, among other
requirements, restrict additional indebtedness. The covenants also require the
Company to meet certain financial ratios.
In November 2002, the interest rates were revised to 4.55% over LIBOR on the
revolving line and 7.27% over LIBOR on the term loan facility as part of a loan
modification.
As of February 28, 2003 and 2002, the outstanding balance on the revolving
credit facility was $22,561 and $23,600, respectively. The Company had
outstanding borrowings under the term loan of $2,367 as of February 28, 2003.
The Company has an outstanding letter of credit of $800 at February 28, 2003.
F-16
On June 13, 2003, the Company received a waiver from the lender for
non-compliance of certain Facility covenants as of February 28, 2003. Interest
rates on both the revolving line and term loan facility were increased 2% and
can decrease if the Company meets certain financial criteria. In addition,
certain financial ratio covenants were modified. The additional interest is not
payable until the current expiration date of the Facility which is November
2005. As part of this modification, the lender and the DSS and DSI noteholders
amended the subordination agreement.(See Note 7) As a result of that amendment,
the two series of promissory notes to the former owners of DSS and DSI have been
condensed into one series of notes. One of the notes is for a term of seven
years, with a minimum monthly payment (including interest) of $40 in year one
and minimum monthly payments of $80 in subsequent years, with a balloon payment
of $3,600 in year 4. The balance on the first note after the balloon payment is
payable over the remaining 3 years of the note, subject to limitations. The
other three notes are for ten years, with minimum monthly payments (including
interest) of $25 in the aggregate in the first year and minimum monthly payments
of $51 in the aggregate for the remaining years. Any unpaid balance at the end
of the note term will be due at that time. Additional payments may be made to
the noteholders if the Company achieves certain financial ratios. In conjunction
with this revision, one of the note holders has agreed to reduce their note by
approximately $2,800, contingent upon the Company's compliance under the
modified subordination agreement.
7. NOTES AND GUARANTEE PAYABLE
Notes and guarantee payable consist of the following:
February 28 February 28,
2003 2002
Notes payable to DSS and DSI (a) $ 28,544 $ 30,267
Guarantee of TLCS liability (c) 2,293 --
Other (b) 1,522 675
------------ -------------
$ 32,359 30,942
Less: current portion 896 4,512
------------ -------------
$ 31,463 $ 26,430
============ =============
(a) The Company issued two series of promissory notes to each of the four
owners of DSS and DSI (three related and one unrelated party, see note 4).
The first series of notes (the "First Series"), in the aggregate principal
amount of $12,975, bears interest at a rate of 5% per annum and is payable
in 36 equal monthly installments of principal, together with interest, with
the first installment having become due on March 1, 2002. The second series
of notes (the "Second Series"), in the aggregate principal amount of
$17,220, bears interest at a rate of 5% per annum and is payable as
follows: $11 million, together with interest, on April 30, 2005 (or earlier
if certain events, as defined, occur prior to such date) and the balance in
60 equal monthly installments of principal, together with interest, with
the first installment becoming due on April 30, 2005. Payment of both the
First Series and the Second Series is collateralized by the assets of the
acquired licensees. Payments on these notes are in accordance with a
subordination agreement between the four former owners of DSS and DSI, the
Facility and the Company. These notes are subordinated to the borrowings
under Company's revolving credit facilities (See Note 6).
(b) The Company issued various notes payable, bearing interest at rates ranging
from 6% and 8% per annum in connection with various acquisitions with
maturities through January 2007.
F-17
(c) Guarantee of TLCS Liability - The Company is contingently liable on $2.3
million of obligations owed by TLCS which is payable over eight years. The
Company is indemnified by TLCS for any obligations arising out of these
matters. On November 8, 2002, TLCS filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code. As a result, the Company
has recorded a provision of $2.3 million representing the balance
outstanding on the related TLCS obligations. The Company has not received
any demands for payment with respect to these obligations. The next payment
is due in September 2003. The obligation is payable over 8 years. The
Company believes that it has certain defenses which could reduce or
eliminate its recorded liability in this matter.
(d) Annual maturities of notes and guarantee payable discussed above are as
follows;
2004 $ 896
2005 2,757
2006 2,828
2007 3,888
2008 3,351
Thereafter 18,639
-------------
Total $ 32,359
=============
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Fiscal Year Ended
-----------------------------------------------------
February 28, 2003 February 28, 2002 February 28, 2001
Current:
Federal $ -- $ -- $ --
State 140 100 100
-------------- -------------- --------------
140 100 100
-------------- -------------- --------------
Deferred
Federal (1,490) (2,143) --
State (94) (136) --
-------------- -------------- --------------
(1,584) (2,279) 100
-------------- -------------- --------------
Total income tax (benefit) expense $ (1,444) $ (2,179) $ 100
============== ============== ==============
F-18
A reconciliation of the differences between income taxes computed at the federal
statutory rate and the provision (benefit) for income taxes as a percentage of
pretax income from continuing operations for each year is as follows:
2003 2002 2001
Federal statutory rate (34.0%) 34.0% (34.0%)
State and local income taxes, net .1% 12.2% 12.6%
of federal income tax benefit
Goodwill amortization -- 7.4% 10.8%
Valuation allowance increase (decrease) -- (208.1%) 20.2%
Other .1% 0.4% 0.8%
-------------------------------------
Effective rate (33.8%) (154.1%) 10.4%
=====================================
The Company's net deferred tax assets are comprised of the following:
February 28, 2003 February 28, 2002
Current:
Allowance for doubtful accounts $ 711 $ 331
Accrued expenses 1,076 148
----------------- -----------------
1,787 479
----------------- -----------------
Non-Current:
Revenue recognition 16 24
Net operating loss carryforward 1,551 1,569
Depreciation and amortization (407) 207
TLCS guarantee 916 --
----------------- -----------------
2,076 1,800
----------------- -----------------
---------------------------------------
$ 3,863 $ 2,279
================= =================
Prior to the year ended February 28, 2002, the Company had provided a valuation
allowance for the full amount of its deferred tax assets, because of the
substantial uncertainties associated with the Company's ability to realize a
deferred tax benefit due to its financial condition. However, based on the
Company's expected profitability, the valuation allowance of $2,952 was
eliminated in fiscal 2002.
Management believes that it is more likely than not that the Company's deferred
tax assets will be realized through future profitable operations. This is based
upon the fact that the company has had profitable operations in each of its
quarters since September 1, 2000 through the third quarter ended November 30,
2003, which quarterly results were profitable before a charge for the TLCS
guarantee. Losses were incurred in the fourth quarter of fiscal 2003 due to an
unexpected shortfall in hospital patient volumes, which volumes appear to be
returning in the second quarter of fiscal 2004. Management believes that it will
return to profitable operations during fiscal 2004 and, accordingly, it is more
likely than not that it will realize its deferred tax assets. As of February 28,
2003, the Company has a Federal net operating loss of approximately $4,563 which
expires in 2020 through 2023.
F-19
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments:
Future minimum rental payments under noncancellable operating leases relating to
office space and equipment rentals that have an initial or remaining lease term
in excess of one year as of February 28, 2003 are as follows:
Year Ending February 28,
2004 $ 1,384
2005 1,171
2006 897
2007 694
2008 593
Thereafter 57
------------
Total minimum lease payments $ 4,796
============
Certain operating leases contain escalation clauses with respect to real estate
taxes and related operating costs.
Rental expense was approximately $1,504, $1,176 and $873 in fiscal 2003, 2002
and 2001, respectively.
Capital lease obligations represent obligations under various equipment leases
with variable interest rates. The minimum annual principal payments for the
capital lease obligations are as follows as of February 28, 2003:
Year Ending February 28,
2004 $ 103
2005 22
------------
Total minimum lease payments 125
Less: amount representing interest 7
------------
Present value of net minimum
payments (including short-term
obligations of $ 98) $ 118
============
F-20
Employment Agreements:
In November 2002, the Company entered into amended employment agreements with
two of its officers, under which they will receive annual base salaries of $302
and $404, respectively. Their employment agreements are automatically extended
at the end of each fiscal year and are terminable by the Company.
In December 2001, the Company entered into an amended three-year employment
agreement with another officer, under which he will receive an annual base
salary of $250, with $15 increases per annum. He is also eligible for an annual
bonus.
In May 2002, the Company entered into a two-year amended employment agreement
with another officer of the Company, under which he receives an annual base
salary of $180, with a $10 increase in the second year.
If a "change of control" (as defined in the agreements) were to occur and cause
the respective employment agreements to terminate, the Company would be required
to make lump sum severance payments of $906 and $1,212, respectively to the
officers who amended their employment contracts in November 2002. In addition,
the Company would be liable for payments to other officers, of which such
payments are immaterial.
Litigation
The Company is subject to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business. Management
and legal counsel periodically review the probable outcome of such proceedings,
the costs and expenses reasonably expected to be incurred, and the availability
and extent of insurance coverage and established reserves. While it is not
possible at this time to predict the outcome of these legal actions, in the
opinion of management, based on these reviews and the likely disposition of the
lawsuits, these matters will not have a material effect on the Company's
financial position, results of operations or cash flows.
10. STOCKHOLDERS' EQUITY
Convertible Preferred Stock Offering
On February 26, 2003, the Company announced it was offering to sell 4,000 shares
of 7% Convertible Series A Preferred Stock at a cost of $500 per share to
certain accredited investors in an offering exempt from registration under the
Securities Act of 1933, as amended.
Each share of the Preferred Stock may be converted at any time by the holder
after April 30, 2003 at a conversion price equal to the lower of (i) 120% of the
weighted average closing price of the Company's common stock on the American
Stock Exchange during the ten trading day period ending April 30, 2003, and (ii)
120% of the weighted average closing price of the Company's common stock on the
American Stock Exchange during the ten trading day period ending on the date the
Company accepts a purchaser's subscription for shares, subject in either case to
adjustment in certain events. As of May 2, 2003, 2,000 shares were sold with a
conversion price of $.73 per share.
The Preferred Stock will be redeemed by the Company on April 30, 2009 at $500
per share, plus all accrued dividends. At any time after April 30, 2004, the
Company may redeem all or some of a purchaser's shares of Preferred Stock, if
the weighted average closing price of the Company's common stock during the ten
trading day period ending on the date of notice of redemption is greater than
200% of the conversion price of such purchaser's shares of Preferred Stock.
F-21
Common Stock - Recapitalization and Voting Rights
During Fiscal 1996, the shareholders approved a plan of recapitalization by
which the existing Common Stock, $.01 par value, was reclassified and converted
into either Class A Common Stock, $.01 par value per share, or Class B Common
Stock, $.01 par value per share. Prior to the recapitalization, shares of Common
Stock that were held by the beneficial owner for at least 48 consecutive months
were considered long-term shares, and were entitled to ten votes for each share
of stock. Pursuant to the recapitalization, long-term shares were converted into
Class B Common Stock and short-term shares (beneficially owned for less than 48
months) were converted into Class A Common Stock.
A holder of Class B Common Stock is entitled to ten votes for each share and
each share is convertible into one share of Class A Common Stock (and will
automatically convert into one share of Class A Common Stock upon transfer
subject to certain limited exceptions). Except as otherwise required by the
Delaware General Corporation Law, all shares of common stock vote as a single
class on all matters submitted to a vote by the stockholders. The
recapitalization included all outstanding options and warrants to purchase
shares of common stock which were converted automatically into options and
warrants to purchase an equal number of shares of Class A Common Stock.
Stock Options
1993 Stock Option Plan
During the year ended February 28, 1994, the Company adopted a stock option plan
(the "1993 Stock Option Plan"). Stock options issued under the 1993 Stock Option
Plan may be incentive stock options ("ISO's") or non-qualified stock options
("NQSO's"). This plan replaced the 1986 Non- Qualified Plan and the 1983
Incentive Stock Option Plan which terminated in 1993 except as to options then
outstanding. Employees, officers, directors and consultants are eligible to
participate in the 1993 Stock Option Plan. Options are granted at not less than
the fair market value of the Common Stock at the date of grant and vest over a
period of two years.
A total of 2,227,750 stock options were granted under the 1993 Stock Option
Plan, at prices ranging from $.50 to $3.87, of which 809,000 remain outstanding
at February 28, 2003.
1994 Performance-Based Stock Option Plan
During the year ended February 28, 1995, the Company adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for the issuance
of up to 3.4 million shares of common stock. Executive officers of the Company
and its wholly-owned subsidiaries are eligible for grants. Performance-based
stock options are granted for periods of up to ten years and the exercise price
is equal to the average of the closing price of the common stock for the twenty
consecutive trading days prior to the date on which the option is granted.
Vesting of Performance Based Stock Options is during the first four years after
the date of grant, and is dependent upon increases in the market price of the
common stock.
Since inception, a total of 7,712,563 stock options were granted under the 1994
Performance-Based Stock Option Plan, at option prices ranging from $.53 to
$3.14, of which 3,211,849 remain outstanding at February 28, 2003.
F-22
1998 Stock Option Plan
During Fiscal 1999, the Company adopted a stock option plan (the "1998 Stock
Option Plan") under which an aggregate of two million shares of common stock are
reserved for issuance. Options granted under the 1998 Stock Option Plan may be
ISO's or NQSO's. Employees, officers, and consultants are eligible to
participate in the 1998 Stock Option Plan. Options are granted at not less than
fair market value of the common stock at the date of grant and vest over a
period of two years.
A total of 1,543,083 stock options were granted under the 1998 Stock Option
Plan, at exercise prices ranging from $.23 to $2.40, of which 650,333 remain
outstanding at February 28, 2003.
2000 Stock Option Plan
During Fiscal 2001, the Company adopted a stock option plan (the "2000 Stock
Option Plan") under which an aggregate of three million shares of common stock
are reserved for issuance. Both key employees and non-employee directors, except
for members of the compensation committee, are eligible to participate in the
2000 Stock Option Plan.
A total of 400,000 stock options were granted under the 2000 Stock Option Plan
at an exercise price of $1.02 of which all are outstanding as of February 28,
2003.
Information regarding the Company's stock option activity is summarized below:
Stock Option Option Price Weighted Average
Activity Exercise Price
Options outstanding as of March 1, 2000 5,634,122 $.25 - $2.06
Granted 41,500 $.23 - $.28 $0.26
Exercised --
Terminated (826,940) $.41 - $1.75 $1.53
-------------
Options outstanding as of February 28, 2001 4,848,682 $.23 - $2.06 $0.61
Granted 507,500 $.56 - $1.02 $1.00
Exercised -- --
Terminated (220,000) $.23 - $2.06 $1.92
-------------
Options outstanding as of February 28, 2002 5,136,182 $.25 - $1.02 $0.59
Granted 45,000 $.85 - $2.40 $1.46
Exercised (103,333) $.50 - $.56 $0.50
Terminated (6,667) $.56 $0.56
-------------
Options outstanding as of February 28, 2003 5,071,182 $.25 - $2.40 $0.59
=============
Included in the outstanding options are 986,699 ISO's and 3,845,182 NQSO's which
were exercisable at February 28, 2003.
The following tables summarize information about stock options outstanding at
February 28, 2003:
F-23
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices Contractual Life Exercise Exercise
(In Years) Price Price
$.23 to $.49 216,500 6.7 $0.34 216,500 $0.35
$.50 to $1.50 4,839,682 6.1 $0.60 4,615,381 $0.53
$2.40 15,000 9.3 $2.40 5,000 $2.40
---------------------------------------------------------------------------
5,071,182 6.1 $0.59 4,836,881 $0.52
===========================================================================
Pro Forma Information
The Company applies the intrinsic value method in accounting for its stock-based
compensation. Had the Company measured compensation under the fair value method
for stock options granted, the Company's net (loss) income and net (loss) income
per share basic and diluted would have been as follows:
Fiscal Year Ended
- -------------------------------------------------------------------------------------------------------
February 28, 2003 February 28, 2002 February 28, 2001
Net (loss) income- as reported $ (2,833) $ 3,593 $ (1,066)
Net (loss) income - pro forma (2,892) 3,495 (1,076)
Basic (loss) income per share as reported $ (0.12) $ 0.15 $ (0.05)
Basic (loss) income per share pro forma (0.12) 0.15 (0.05)
Diluted (loss) income per share as reported (0.12) 0.14 (0.05)
Diluted (loss) income per share pro forma (0.12) 0.14 (0.05)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes Option pricing model with the following assumptions used for
grants in fiscal 2003, 2002 and 2001, respectively. Risk-free interest rates of
4.7%, 4.5% and 5.1%; dividend yield of 0% for each year; expected lives of 10
years for each year and volatility of 96%, 89% and 105%.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan under which eligible employees
may purchase common stock of the Company at 90 percent of the lower of the
closing price of the Company's common stock on the first and last day of the
three-month purchase period. Employees elect to pay for their stock purchases
through payroll deductions at a rate of 1% to 10% of their gross payroll.
11. EMPLOYEE 401(K) SAVINGS PLAN
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing one year of
service and having attained the age of twenty-one. The plan provides for growth
in savings through contributions and income from investments. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended. Plan participants are allowed to contribute a specified percentage of
their base salary. However, the Company retains the right to make optional
contributions for any plan year. Optional contributions were not made in Fiscal
2003, 2002 and 2001.
F-24
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for Fiscal 2003 and 2002 are as
follows (in thousands, except per share data):
Year ended February 28, 2003 First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $37,699 $38,979 $38,282 $33,759
----------------------------------------------------------------
Net (loss) income $427 $442 $(1,249) $(1) (2,454)
================================================================
(Loss) earnings per common share-basic $0.02 $0.02 $(0.05) $(0.10)
================================================================
(Loss) earnings per common share-diluted $0.02 $0.02 $(0.05) $(0.10)
================================================================
Year ended February 28, 2002 First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $35,461 $38,561 $38,530 $36,862
----------------------------------------------------------------
Net income $42 $510 $709 $(2) 2,332
================================================================
Earnings per common share - basic $0.00 $0.02 $0.03 $0.10
================================================================
Earnings per common share - diluted $0.00 $0.02 $0.03 $0.09
================================================================
(1) In the fourth quarter of fiscal 2003, the Company recorded a charge of
approximately $900 for workers compensation liabilities.
(2) In the fourth quarter of fiscal 2002, the Company reversed its valuation
allowance on deferred income taxes of $2,952.
F-25
ATC HEALTHCARE, INC. AND SUBSIDIARIES
- -------------------------------------
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Fiscal Year Ended
-------------------------------------------------------
February 28, 2003 February 28, 2002 February 28, 2001
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 830 $ 1,344 $ 2,528
Additions charged to costs and expenses 1,629 400 849
Deductions (675) (914) (2,033)
---------------- --------------- ----------------
Balance, end of period $ 1,784 $ 830 $ 1,344
================ =============== ================
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
On November 14, 2001, the Company filed Form 8-K indicating that on November 6,
2001, the accounting firm of Deloitte and Touche, LLP was dismissed and would
not be engaged to audit the Company's consolidated financial statements for the
year ended February 28, 2002. The Company has appointed PricewaterhouseCoopers,
LLP as its independent audit firm for its 2002 and 2003 fiscal years.
PART III
- --------
The information required by Items 10, 11, 12 and 13 is included in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders, which will be
filed pursuant to Regulation 14A within 120 days after the close of the fiscal
year for which this Report is filed, and which information is incorporated
herein by reference.
PART IV
- -------
ITEM 14. CONTROLS AND PROCEDURES
-----------------------
Within the 90-day period prior to the filing of this report, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls, and procedures as defined in the Exchange Act
Rule 13a-14(c). Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of the date of that evaluation. There have been no
significant changes in internal control, or in factors that could significantly
affect internal controls, subsequent to the date of the Chief Executive Officer
and Chief Financial Officer completed their evaluation.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
-------------------------------------------
REPORTS ON FORM 8-K
-------------------
(A) Financial Statements and Financial Statement Schedules
The financial statements, including the supporting schedules, filed as part of
the report, are listed in the Table of Contents to the Consolidated Financial
Statements.
(B) Reports on 8-K
February 27, 2003 - Announcement that it will offer up to 4,000 shares of
7% Convertible Series A Preferred Stock at a price of $500 per share to
certain accredited investors in an offering exempt from registration under
the Securities Act of 1933, as amended.
June 2, 2003 - Announcement of fourth quarter and fiscal year end February
28, 2003 results of operations.
(C) Exhibits
The Exhibits filed as part of the Report are listed in the Index to Exhibits
below.
D. EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Company, filed July 11, 1998 (A)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed August 22,
1991. (B)
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed September 3,
1992. (A)
3.4 Certificate of Retirement of Stock of the Company, filed February 28, 1994.
3.5 Certificate of Retirement of Stock of the Company, filed June 3, 1994. (A)
3.6 Certificate of Designation, Rights and Preferences of the Class A Preferred Stock of the Company, filed
June 6, 1994. (A)
3.7 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed August 23, 1994.
(A)
3.8 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed October 26,
1995. (C)
3.9 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed December 19,
1995. (D)
3.10 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed December 19,
1995 (D)
3.11 Amended and Restated By-Laws of the Company. (A)
3.12 Certificate of Amendment of Certificate of Incorporation of Staff Builders, Inc., filed August 2, 2001
(X)
4.1 Specimen Class A Common Stock Certificate. (E)
4.2 Specimen Class B Common Stock Certificate. (F)
10.8 1986 Non-Qualified Stock Option Plan of the Company. (H)
10.9 First Amendment to the 1986 Non-Qualified Stock Option Plan, effective as of May 11, 1990. (A)
10.10 Amendment to the 1986 Non-Qualified Stock Option Plan, dated as of October 27, 1995. (I)
10.11 Resolutions of the Company's Board of Directors amending the 1983 Incentive Stock Option Plan and the
1986 Non-Qualified Stock Option Plan, dated as of June 3, 1991. (A)
Exhibit No. Description
- ----------- -----------
10.12 1993 Stock Option Plan of the Company. (A)
10.13 1998 Stock Option Plan of the Company (incorporated by
reference to Exhibit C to the Company's Proxy Statement
dated August 27, 1998, filed with the Commission on August
27, 1998).
10.14 Amended and Restated 1993 Employee Stock Purchase Plan of the Company (J)
10.15 1998 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit D to the Company's
Proxy Statement dated August 27, 1998, filed with the
Commission on August 27, 1998).
10.18 1994 Performance-Based Stock Option Plan of the Company (incorporated by reference to Exhibit B to the
Company's Proxy Statement, dated July 18, 1994, filed with the Commission on July 27, 1994).
10.19 Stock Option Agreement, dated as of March 28, 1990, under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.20 Stock Option Agreement, dated as of June 17, 1991, under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.21 Stock Option Agreement, dated December 1, 1998, under the Company's 1993 Stock Option Plan between the
Company and Stephen Savitsky. (K)
10.22 Stock Option Agreement, dated December 1, 1998, under the Company's 1994 Performance-Based Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.23 Stock Option Agreement, dated as of March 28, 1990, under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.24 Stock Option Agreement, dated as of June 17, 1991, under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.25 Stock Option Agreement, dated December 1, 1998, under the Company's 1993 Stock Option Plan between the
Company and David Savitsky. (K)
10.26 Stock Option Agreement, dated December 1, 1998, under the Company's 1994 Performance-Based Stock Option
Plan between the Company and David Savitsky. (K)
10.27 Stock Option Agreement, dated December 1, 1998, under the Company's 1993 Stock Option Plan, between the
Company and Edward Teixeira. (K)
See Notes to Exhibits
Exhibit No. Description
- ----------- -----------
10.29 Stock Option Agreement, dated December 1, 1998, under the Company's 1994 Performance-Based Stock Option Plan,
between the Company and Edward Teixeira. (K)
10.30 Stock Option Agreement, dated December 1, 1998, under the Company's 1998 Stock Option Plan, between the
Company and Edward Teixeira. (K)
10.39 Employment Agreement, dated as of June 1, 1987, between the Company and Stephen Savitsky. (A)
10.40 Amendment, dated as of October 31, 1991, to the Employment Agreement between the Company and Stephen
Savitsky. (A)
10.41 Amendment, dated as of December 7, 1992, to the Employment Agreement between the Company and Stephen
Savitsky. (A)
10.42 Employment Agreement, dated as of June 1, 1987, between the Company and David Savitsky. (A)
10.43 Amendment, dated as of October 31, 1991, to the Employment Agreement between the Company and David
Savitsky. (A)
10.44 Amendment, dated as of January 3, 1992, to the Employment Agreement between the Company and David
Savitsky. (A)
10.45 Amendment, dated as of December 7, 1992, to the Employment Agreement between the Company and David
Savitsky. (A)
10.54 Amended and Restated Loan and Security Agreement, dated as of January 8, 1997, between the Company, its
subsidiaries and Mellon Bank, N.A. (M)
Exhibit No. Description
- ----------- -----------
10.55 First Amendment to Amended and Restated Loan and Security Agreement dated as of April 27, 1998, between
the Company, its subsidiaries and Mellon Bank, N.A. (G)
10.56 Master Lease Agreement dated as of December 4, 1996, between the Company and Chase Equipment Leasing,
Inc. (M)
10.57 Premium Finance Agreement, Disclosure Statement and Security Agreement dated as of December 26, 1996,
between the Company and A.I. Credit Corp. (M)
10.58 Agreement of Lease, dated as of October 1, 1993, between Triad III Associates and the Company. (A)
10.59 First Lease Amendment, dated October 25, 1998, between Matterhorn USA, Inc. and the Company.
10.60 Supplemental Agreement dated as of January 21, 1994, between General Electric Capital Corporation, Triad
III Associates and the Company (A)
10.61 Agreement of Lease, dated as of June 19, 1995, between Triad III Associates and the Company. (D)
10.62 Agreement of Lease, dated as of February 12, 1996, between Triad III Associates and the Company. (D)
10.63 License Agreement, dated as of April 23, 1996, between Matterhorn One, Ltd. and the Company (M)
10.64 License Agreement, dated as of January 3, 1997, between Matterhorn USA, Inc. and the Company (M)
10.65 License Agreement, dated as of January 16, 1997, between Matterhorn USA, Inc. and the Company . (M)
10.66 License Agreement, dated as of December 16, 1998, between Matterhorn USA, Inc. and the Company. (S)
10.71 Asset Purchase and Sale Agreement, dated as of September 6, 1996, by and among ATC Healthcare Services,
Inc. and the Company and William Halperin and All Care Nursing Service, Inc. (N)
10.73 Stock Purchase Agreement by and among the Company and Raymond T. Sheerin, Michael Altman, Stephen
Fleischner and Chelsea Computer Consultants, Inc., dated September 24, 1996. (L)
See Notes to Exhibits
Exhibit No. Description
- ----------- -----------
10.74 Amendment No. 1 to Stock Purchase Agreement by and among the Company and Raymond T. Sheerin, Michael
Altman, Stephen Fleischner and Chelsea Computer Consultants, Inc., dated September 24, 1996 (L)
10.75 Shareholders Agreement between Raymond T. Sheerin and Michael Altman and Stephen Fleischner and the
Company and Chelsea Computer Consultants, Inc., dated September 24, 1996. (L)
10.76 Amendment No. 1 to Shareholders Agreement among Chelsea Computer Consultants, Inc., Raymond T. Sheerin,
Michael Altman and the Company, dated October 30, 1997 (L)
10.77 Indemnification Agreement, dated as of September 1, 1987, between the Company and Stephen Savitsky. (A)
10.78 Indemnification Agreement, dated as of September 1, 1987, between the Company and David Savitsky. (A)
10.79 Indemnification Agreement, dated as of September 1, 1987, between the Company and Bernard J. Firestone.
(A)
10.80 Indemnification Agreement, dated as of September 1, 1987, between the Company and Jonathan Halpert. (A)
10.81 Indemnification Agreement, dated as of May 2, 1995, between the Company and Donald Meyers. (M)
10.82 Indemnification Agreement, dated as of May 2, 1995, between the Company and Edward Teixeira. (A)
10.84 Form of Medical Staffing Services Franchise Agreement (D)
10.89 Confession of Judgment, dated January 27, 2000, granted by
a subsidiary of the Company, to Roger Jack Pleasant.First
Lease Amendment, dated October 28, 1998, between
Matterhorn USA, Inc. and the Company.
(B)
10.91 Forbearance and Acknowledgement Agreement, dated as of February 22, 2000, between TLCS's subsidiaries,
the Company and Chase Equipment Leasing, Inc. Agreement and Release, dated February 28, 1997, between
Larry Campbell and the Company. (C)
10.92 Distribution agreement, dated as of October 20, 1999, between the Company and TLCS.(O)
10.93 Tax Allocation agreement dated as of October 20, 1999, between the Company and TLCS. (O)
See Notes to Exhibits
Exhibit No. Description
- ----------- -----------
10.94 Transitional Services agreement, dated as of October 20, 1999, between the Company and TLCS. (O)
10.95 Trademark License agreement, dated as of October 20, 1999, between the Company and TLCS. (O)
10.96 Sublease, dated as of October 20, 1999, between the Company and TLCS. (O)
10.97 Employee Benefits agreement, dated as of October 20, 1999, between the Company and TLCS. (O)
10.98 Amendment, dated as of October 20, 1999, to the Employment agreement between the Company and Stephen
Savitsky. (P)
10.99 Amendment, dated as of October 20, 1999, to the Employment agreement between the Company and David
Savitsky. (P)
10.105 Second Amendment to ATC Revolving Credit Loan and Security Agreement, dated October 20, 1999 between the
Company and Mellon Bank, N.A. (P)
10.106 Master Lease dated November 18, 1999 between the Company andTechnology Integration Financial Services.
(Q)
10.107 Loan and Security Agreement between the Company and Copelco/American Healthfund Inc. dated March 29,
2000. (Q)
10.108 Loan and Security Agreement First Amendment between the Company and Healthcare Business Credit
Corporation (formerly known as Copelco/American Healthfund Inc.) dated July 31, 2000. (R)
10.109 Employment agreement dated August 1, 2000 between the Company and Alan Levy (R)
10.110 Equipment lease agreements with Technology Integration Financial Services, Inc. (R)
10.111 Loan and Security Agreement dated April 6, 2001 between the Company and HFG Healthco-4 LLC (W)
10.112 Receivables Purchase and Transfer Agreement dated April 6, 2001 between the Company and HFG Healthco-4
LLC (W)
10.113 Asset purchase agreement dated October 5, 2001, between the Company and Doctors' Corner and Healthcare
Staffing, Inc. (U)
10.114 Asset purchase agreement dated January 31, 2002, between the Company and Direct Staffing, Inc. and DSS
Staffing Corp. (V)
10.115 Amendment to Employment agreement dated November 28, 2001 between the Company and Stephen Savitsky (Y)
10.116 Amendment to Employment agreement dated November 28, 2001 between the Company and David Savitsky (Y)
10.117 Amendment to Employment agreement dated December 18, 2001 between the Company and Edward Teixeira (Y)
10.118 Amendment to Employment agreement dated May 24, 2002 between the Company and Alan Levy (Y)
10.119 Loan and Security Agreement dated November 7, 2002 between the Company and HFG Healthco-4 LLC (Z)
- ---------------------------
See Notes to Exhibits
Exhibit No. Description
- ----------- -----------
21. Subsidiaries of the Company. *
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Deloitte & Touche, LLP*
24. Powers of Attorney. *
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
- ---------------------------
See Notes to Exhibits
NOTES TO EXHIBITS
-----------------
(A) Incorporated by reference to the Company's exhibit booklet to its Form 10-K
for the Fiscal year ended February 28, 1995 (File No. 0-11380), filed with
the Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-43728), dated January 29, 1992.
(C) Incorporated by reference to the Company's Form 8-K (file No. 0-11380),
filed with the Commission on October 31, 1995.
(D) Incorporated by reference to the Company's exhibit booklet to it Form 10-K
for the Fiscal year ended February 28, 1996 (file No. 0-11380), filed with
the Commission on May 13, 1996.
(E) Incorporated by reference to the Company's Form 8-A (file No. 0-11380),
filed with the Commission on October 24, 1995.
(F) Incorporated by reference to the Company's Form 8-A (file No. 0-11380),
filed with the Commission on October 24, 1995.
(G) Incorporated by reference to the Company's exhibit booklet to its Form 10-K
for the Fiscal year ended February 28, 1998 (File No. 0-11380), filed with
the Commission on May 28, 1998.
(H) Incorporated by reference to the Company's Registration Statement on Form
S-4, as amended (File No. 33-9261), dated April 9, 1987.
(I) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 33-63939), filed with the Commission on November 2, 1995.
(J) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 3371974), filed with the Commission on November 19, 1993.
(K) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), filed with the
Commission on January 19, 1999.
(L) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), field with the
Commission on January 14, 1998.
(M) Incorporated by reference to the Company's exhibit booklet to its Form 10-K
for the Fiscal year ended February 28, 1997 (File No. 0-11380), filed with
the Commission on May 27, 1997.
NOTES TO EXHIBIT
----------------
(N) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1996 (File No. 0-11380), filed with the
Commission on January 14, 1997.
(O) Incorporated by reference to Tender Loving Care Health Care Services Inc.'s
Form 10-Q for the quarterly period ended August 31, 1999 (File No. 0-25777)
filed with the Commission on October 20, 1999.
(P) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 1999 (File No. 0-11380) filed with the Commission
on October 20, 1999.
(Q) Incorporated by reference to the Company's Form 10-K for the year ended
February 29, 2000 (File No. 0-11380) filed with the Commission on July 17,
2000.
(R) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 2000 (File No. 0-11380) filed with the Commission
on October 16, 2000.
(S) Incorporated by reference to the Company's Form 10-K for the year ended
February 28, 1999 (File No. 0-11380) filed with the Commission on June 11,
1999.
(T) Incorporated by reference to the Company's exhibit booklet to its Form 10-K
for the Fiscal year ended February 28, 1994 (File No. 0-11380), filed with
the Commission on May 13, 1994.
(U) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 2001 (File No. 0-11380) filed with the Commission
on October 15, 2001.
(V) Incorporated by reference to the Company's Form 8-K (File No. 0-11380)
filed with the Commission on February 19, 2002.
(W) Incorporated by reference to the Company's Form 10-K/A (File No. 0-11380)
filed with the Commission on June 28, 2001.
(X) Incorporated by reference to the Company's Form Def 14A (File No. 0-11380)
filed with the Commission on June 27, 2001.
(Y) Incorporated by reference to the Company's Form 10-K for the year ended
February 28, 2002 (File No. 0-11380) filed with the Commission on June 10,
2002.
(Z) Incorporated by reference to the Company's Form 10-Q for the quarter ended
November 30, 2002 (File No. 0-11380) filed with the Commission on January
21, 2003
* Incorporated herein
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ATC HEALTHCARE, INC.
By: /S/ DAVID SAVITSKY
--------------------------------
David Savitsky
Chief Executive Officer
Dated: June 13, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ DAVID SAVITSKY Chief Executive Officer June 13, 2003
- ------------------
David Savitsky (Principal Executive
Officer) and Director
/S/ ALAN LEVY Senior Vice President, Finance, June 13, 2003
- --------------
Alan Levy Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
/S/ STEPHEN SAVITSKY President and Chairman of the Board June 13, 2003
- ---------------------
Stephen Savitsky
* Director June 13, 2003
- ---------------------------
Bernard J. Firestone, Ph. D.
* Director June 13, 2003
- ---------------------------
Jonathan Halpert, Ph. D.
* Director June 13, 2003
- ---------------------------
Donald Meyers
*By: /S/ DAVID SAVITSKY
-------------------
David Savitsky
Attorney-in-Fact